With 10-year Treasury yields hovering around their lowest levels in a year, 2014 has been a fine time for investors to be long real estate investment trusts (REITs) and the corresponding exchange traded funds.
With interest rates low and expected to remain that way throughout much of the developed world, global REIT ETFs have offered solid returns and yields for investors seeking some international REIT exposure. For example, the Vanguard Global ex-U.S. Real Estate ETF (NASDAQ:VNQI) is up 7% year-to-date. However, the FlexShares Global Quality Real Estate Index Fund (NYSEARCA:GQRE) has been even better with a 2014 jump of 12.1%.
GQRE, which debuted in November 2013, tracks the Northern Trust Global Quality Real Estate Index, a fundamentally-weighted index that focuses on commercial and residential REITs. Mortgage REITs, real estate finance companies, mortgage brokers and bankers, commercial and residential real estate brokers and real estate agents, and home builders are among the securities that are excluded from the index.
GQRE was one of just three ETFs to hit new all-time highs last Friday, doing so on volume that was better than twice the daily average.
With the U.S. accounting for 47.5% of GQRE's country weight and the resulting talk that the run-up in U.S. REITs has made the group a bit stretched on valuation, GQRE sports a P/E ratio of 30.2 and a price-to-book ratio of almost 2.3, according to FlexShares data. That does, however, compare favorably with the iShares U.S. Real Estate ETF (NYSEARCA:IYR) with a P/E north of 44.
Country allocations are pivotal with global REIT ETFs, particularly in the current environment of varying monetary policies throughout the developed world. Combine GQRE's U.S. and U.K. exposure and that is about 56% of the ETF's geographic weight appearing primed for rate hikes sometime in the next nine months.
Among GQRE's other country weights, Japan is not likely to raise rates anytime soon, Sweden just cut rates and by more than what was expected, while Canada has kept its benchmark lending rate at 1% for four years. Those countries combine for 13% of GQRE's weight.
The $27.2 million fund has a distribution yield of 4% and charges 0.45% per year.
FlexShares Global Quality Real Estate Index Fund Country Weights
Graph Courtesy: FlexShares
ETF Trends editorial team contributed to this post.
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