I've previously focused on iShares FTSE EPRA/NAREIT North America (IFNA) and iShares FTSE EPRA/NAREIT Developed Europe (IFEU), so I thought this time I would take a look at the third member of the global REIT investing troika, the Asian market, with a focus on iShares FTSE EPRA/NAREIT Developed Asia (IFAS), which tracks the FTSE EPRA/NAREIT Developed Asia Index (EGAS).
IFAS reports an expense ratio of 0.48%, a 12-month yield of 5.09%, and annualized performance difference (tracking error) of +0.11%.
Since January 1990, EGAS has shown composite annual average total returns of 6.78%. That's not very good historically compared to IFNA (the North America index returned a spectacular 12.50% over those 21-plus years), but it's better than Europe, which languished--comparatively speaking--at 5.21% over the same period.
The Sharpe ratio (measuring risk-adjusted returns) for EGAS was 0.072, which again is poor compared to North America (0.145) but better than Europe (0.053). It's also poor relative to global equity investments generally, with nearly three-quarters of global equity benchmarks providing stronger risk-adjusted returns over that historical period. The Sharpe ratio is excess returns (that is, returns minus the return you could have gotten with no risk at all) divided by volatility; Asian real estate returns were actually pretty normal for a global equity investment, so the reason EGAS's Sharpe ratio has been so poor was because of its high volatility. That's primarily because Asian REITs (or, technically speaking, Asian listed property companies, or LPCs) tend to do much more development work than their North American and European counterparts.
The value of adding IFAS to your portfolio, just as with IFEU, would mainly be in terms of diversification: the diversification benefit of IFEU has been better than the diversification benefit of IFAS, but IFAS has provided better returns and better risk-adjusted returns than IFEU. EGAS has an average correlation of just 59.7% against the Dow Jones Total Market index, which indicates good diversification that should reduce aggregate portfolio volatility; on the other hand, the beta of EGAS relative to the DJTM has been 1.02, meaning that Asian real estate holdings haven't helped to bring down the systematic risk of a domestic stock allocation.
In terms of putting together a global real estate portfolio, however, IFAS can be a strong diversifier: it has a very low correlation of only 40.0% and very low beta of only 0.54 against U.S. equity REITs.
Recently I wrote an article about ING Investment Management's 2011 Global REIT Outlook, which predicted total returns of 15%-20% for Hong Kong/China REITs and 5%-10% for REITs in Japan and Singapore. IFAS has 29.23% of its portfolio in Hong Kong plus 6.15% in China along with 27.80% in Japan, and 12.23% in Singapore. (IFAS has 23.05% in Australia, but ING's outlook didn't include a prediction for total returns on A-REITs.)
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.