International REITs Offer Currency and Inflation Hedge

by: MyPlanIQ

Among dividend paying equity ETFs, REITs continue to out perform other dividend stock ETFs. Both international (NYSEARCA:RWX) and US REITs (NYSEARCA:IYR), (NYSEARCA:VNQ) are ranked at the top two spots in the following trend score table. This trend has lasted several months now. For more detailed performance, please look here.

Assets Class Symbols 03/09
SPDR DJ Wilshire Intl Real Estate (RWX) 9.74% 10.04% v
iShares Dow Jones US Real Estate (IYR) 9.61% 10.0% v
SPDR S&P 500 (NYSEARCA:SPY) 9.41% 10.12% v
Vanguard Dividend Appreciation (NYSEARCA:VIG) 9.2% 9.09% ^
Vanguard High Dividend Yield Indx (NYSEARCA:VYM) 9.15% 9.39% v
iShares Dow Jones Select Dividend Index (NYSEARCA:DVY) 8.42% 7.38% ^
First Trust Value Line Dividend Index (NYSEARCA:FVD) 8.22% 7.75% ^
WisdomTree Emerging Market Equity Income (NYSEARCA:DEM) 8.12% 7.59% ^
iShares Dow Jones Intl Select Div Idx (NYSEARCA:IDV) 8.05% 9.23% v
SPDR S&P Dividend (NYSEARCA:SDY) 7.95% 7.14% ^
PowerShares Intl Dividend Achievers (NASDAQ:PID) 7.84% 9.12% v
PowerShares HighYield Dividend Achievers (NASDAQ:PEY) 7.11% 6.33% ^
iShares MSCI EAFE Index (NYSEARCA:EFA) 6.48% 8.35% v
iShares MSCI Emerging Markets Index (NYSEARCA:EEM) 6.3% 5.21% ^
iShares S&P U.S. Preferred Stock Index (NYSEARCA:PFF) 3.38% 3.4% v
The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).

International REITs (RWX), (NYSEARCA:DRW), (NASDAQ:IFGL) have risen along with the global economic recovery. The sector suffered staggering a loss in 2008: SPDR Dow Jones Intl Real Estate (RWX) had a 51% loss, WisdomTree International Real Estate (DRW) was -57% and iShares FTSE EPRA/NAREIT Dev Real Estate (IFGL) was -52%. Since then, the sector has recovered dramatically, though from the following table, it has still had negative annual returns in the last 3 years.

As of 3/04/2011

Description Symbol 1 Yr 3 Yr 5 Yr Avg. Volume(NYSE:K) 1 Yr Sharpe
SPDR Dow Jones Intl Real Estat (RWX) 24.45% -3.57% NA 312 106.56%
iShares FTSE EPRA/NAREIT Dev Real Estate (IFGL) 13.32% -5.29% NA 66 65.6%
SPDR Dow Jones Global Real Estate (NYSEARCA:RWO) 27.78% NA NA 71 144.86%
iShares S&P Dev ex-US Property (NYSEARCA:WPS) 16.81% -4.01% NA 20 79.7%
WisdomTree International Real Estate (DRW) 22.25% -3.97% NA 32 99.26%

In the current economic cycle, barring from an abrupt economic slowdown, international REITs offer the following advantages:
  • They offer international diversification, both among risk equity assets and REITs.
  • They offer inflation hedge: traditionally, REITs are reasonably anti-inflation: as landlords, the real estate operators can raise rents when inflation rises.
  • They offer dollar hedge: in the era of dollar depreciation due to high debt in the U.S., REITs abroad make perfect sense.
If we dig deeper on the holdings of SPDR Dow Jones REITs (RWX), we can see its top ten holdings:
Fund Country Weights
As of 03/08/2011
Japan 18.45%
Australia 18.36%
United Kingdom 13.42%
Hong Kong 12.74%
France 9.35%
Canada 9.15%
Singapore 7.09%
Austria 2.30%
Netherlands 2.21%
Switzerland 2.13%

The top two countries, Japan and Australia, have strong currencies against U.S. dollars. This does bode well with the long term dollar weakness.

In conclusion, international REITs offer several advantages in building a portfolio. As always, the view should be taken in an overall asset allocation strategy. This is especially true in today's highly overvalued and overbought markets.

Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.