I plan to do a series of articles on different real estate ETFs, starting this time with iShares FTSE EPRA/NAREIT North America Index IFNA, which tracks the FTSE EPRA/NAREIT North America index (UGNA). It reports an expense ratio of 0.48%, 30-day yield of 3.12%, and annualized performance difference (tracking error) of +1.10%.
Since January 1990, UGNA has shown composite annual average total returns of 12.50%. That's higher than any other listed real estate index over that period other than the FTSE EPRA/NAREIT United States index (UNUS), which clocked in at 12.86%. Not surprisingly, the difference is the fact that Canadian listed property companies, which account for roughly one-tenth of the North America index, didn't do as well: returns on the FTSE EPRA/NAREIT Canada index (ELCA) averaged just 0.73% per year over that period.
The Sharpe ratio (measuring risk-adjusted returns) for UGNA was 0.502, which is extremely strong for equity investments. Among global listed property indexes, only UNUS showed better risk-adjusted returns at 0.530. I've looked at 61 other U.S. stock market indexes and have found only four (all mid-cap or mid-cap value) with better risk-adjusted returns than UGNA -- and I've looked at 1,247 global stock market indexes (including country-specific, ex-US, etc.) and have found only 50 with better risk-adjusted returns. (Another measure of risk-adjusted returns is the Treynor ratio; only 51 global indexes, and no domestic ones, have a higher Treynor ratio than UGNA.)
In terms of diversification, UGNA has an average correlation of just 59.0% against the Dow Jones Total Market index and a beta of just 0.82 -- meaning that IFNA should provide very strong diversification benefits against a domestic stock allocation and should bring down the volatility of an equity portfolio that includes the broad U.S. stock market.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I am long Vanguard REIT Index Fund and ING Global Real Estate Fund.
Disclaimer: The opinions expressed in this post are my own and do not necessarily reflect those of the National Association of Real Estate Investment Trusts ((NAREIT)). Neither I nor NAREIT are acting as an investment advisor, investment fiduciary, broker, dealer or other market participant, nor is any offer or solicitation to buy or sell any security investment being made. This information is solely educational in nature and not intended to serve as the primary basis for any investment decision.