Real Estate ETFs - A Quick Overview

Investors in the U.S. now have a wider variety of funds to choose from to gain exposure to non-U.S. commercial property (real estate). In the beginning, there were actively managed funds from Cohen and Steers [IRFAX] and Fidelity [FIREX]. Then came the first index product, State Street’s SPDR Dow Jones International Real Estate ETF (RWX), which rapidly accumulated over $1 billion in assets. Now there are two more index offerings, one from Barclays Global Investors -- the iShares S&P World ex U.S. Property Fund (WPS), with an expense ratio of 0.48% compared to the SPDR’s 0.60%, -- and the Wisdom Tree International Real Estate Fund (DRW) with an expense ratio of 0.58%. While the State Street and BGI products use market capitalization weighting, the Wisdom Tree fund, in keeping with the firm’s fundamental indexing approach, weights its holdings by their respective dividend yields.

Earlier this year, iShares launched three new ETF products in the United States based on the industrial/office (FIO), residential (REZ), and retail (RTL) subsegments of the broad FTSE NAREIT index. Presumably, part of the logic for these new products was to make it easier for investors to implement sector rotation strategies within the domestic property asset class, on the assumption that the returns on different sectors would have low correlation with each other, and would vary differently over the economic cycle. So far, a quick look at these three products’ price history will show you that this theory hasn’t quite panned out, with macro factors that affect the broad real estate asset class seeming to overwhelm any segment factors that are at work.