Fund companies have been working on international real estate funds in a major way over the past six months, as investors – who have become increasingly enamored by real estate as an asset class – look to diversify away from a perceived bubble in U.S. markets. Both SSgA and WisdomTree submitted petitions to the Securities and Exchange Commission for the right to launch ETFs, but SSgA has won coveted first-mover advantage by launching its streetTRACKs Dow Jones Wilshire International Real Estate ETF (RWX) onto the American Stock Exchange on December 19.
The new fund is dominated by exposure to the UK, Australia and Japan, which collectively represent nearly 60 percent of the fund. But it includes a smattering of exposure to other markets, as well.
The fund’s largest holding is the Westfield Group, an Australian company with significant positions globally; it represents nearly 7 percent of the fund.
The only downside to the product is its expense, which, at 60 basis points, is on the high side for an ETF. Compared to competing fund products available today, however, it represents a very good deal: the Alpine International Real Estate Fund [EGLRX], for example, charges 1.18 percent, and almost all international real estate funds have expense ratios over 1 percent. Still, we can hope that WisdomTree will challenge SSgA on pricing when it secures approval to launch its own fund.
The new ETF is likely to be a hit with investors. The thought is that different regions are at different stages of the real estate cycle, so that while the U.S. may be trending down, global markets are on the upswing. The UK and Australia, for instance, have already gone through a market correction, only to see property values shoot even higher in recent years. In Japan, in contrast, markets appear to be hitting the sweet spot of performance right now.