Is there a global real estate ETF or index mutual fund?

Real estate is an important component of a diversified portfolio. The core ETF portfolio from A Better Way to Invest, for example, contains the streetTRACKS Wilshire REIT Index Fund, ticker RWR. But what about global real estate? Tom Coyne of Index Investor (subscription required) asks "Is there an index fund that tracks global commercial property?", and answers:

Unfortunately, to our knowledge there is not yet such a product available. On the other hand, if you live in Australia, Canada, the Eurozone, or the U.K., you have a pretty decent choice of actively managed funds that invest in the equity securities of global property companies.

However, if you live in the United States, your choices are far more limited. While there are a number of index mutual funds and ETFs that track domestic commercial property (REIT) indexes, the only globally focused funds are actively managed. These include the ABM Amro Real Estate Fund (ARFCX, expense ratio 1.37%), the ING Global Real Estate Fund (IGCAX, expense ratio 2.50%), and the ING Clarion Global Real Estate Income Fund (a closed end fund, IGR).

It is important to note, however, that the holding of the first two funds seem to be tilted more towards U.S. investments relative to the U.S. weighting in global commercial property indexes. From a marketing point of view, this may make sense, if they are trying to stay reasonably close to domestic REIT returns. However, investors can buy these more cheaply via a domestic index fund.

The good news in this story is that Fidelity has just launched the Fidelity International Real Estate Fund (FIREX, expense ratio 1.45%). We like this fund because it is explicitly focused on real estate securities in markets outside the United States, which collectively account for roughly half of the total market capitalization of the global real estate securities market.

While the three major global property indexes are somewhat different in their coverage of this market, all three show that global commercial property delivered excellent returns, and probably outpaced the U.S. in 2004:

Global Property Index	Number of Stocks Included	2004 Return in USD
FTSE	102	37.6%
EPRA/NAREIT	250	30.9%
S&P Citigroup BMI	About 350	36.6%
-- U.S. REITS (VGSIX)	121	30.7%

To conclude, for U.S. investors, the best way today to invest in the global commercial property market seems to be a 50/50 mix of FIREX plus a U.S. real estate index fund.