The SPDR® Dow Jones International Real Estate ETF before expenses, seeks to closely match the returns and characteristics of the total return performance of the Dow Jones Global ex-U.S. Select Real Estate Securities IndexSM, an equity index based upon the global (ex-US) real estate market. Our approach is designed to provide portfolios with low portfolio turnover, accurate tracking, and lower costs.
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FlexShares, the ETF branch of Northern Trust Corp. (NTRS), recently released the FlexShares Global Quality Real Estate Index Fund (GQRE); the firm's first real estate focused ETF.
This new fund, with an expense ratio of 0.45%, will provide investors with and REIT portfolio that provides exposure to the inflation-hedging qualities and long-term capital growth potential of global real estate.
“Research shows that a high-quality, value-focused portfolio of real estate securities may offer attractive returns with less volatility compared to traditional capitalization-weighted global real estate indices,” said Shundrawn Thomas, head of Northern Trust's FlexShares ETF Group, in a press release.
Rising interest rates have brought 4 years of easy gains for the REIT market to a halt and have advisers honing their bets. The board NAREIT All Equity REIT Index is up about 8% this year, not just paling in comparison the S&P 500's 24% gain, but REITs had been up 15% early in 2013 before rates started rising.
On the idea of higher rates hitting relatively-highly levered REITs the most, Andrew Ahrens is looking for REITs with less relative debt on their books. On favorite is the iShares Retail Real Estate Capped ETF (RTL). He's also putting money into foreign-leaning funds such as Cohen & Steers' Global Realty Majors ETF (GRI).
Cohen & Steers portfolio manager Chip McKinley suggests - unlike the U.S. - overseas REITs are only just now beginning to become popular. U.K. real estate companies are up more than 20% this year; Japan more than 40%. Up and comers include Germany and Australia. "Both markets are home to high-quality developers with attractive portfolios that are priced well-below the value of their underlying properties."
Paul Curbo - co-manager of the actively-managed PowerShares Active U.S. Real Estate Fuind (PSR) - likes REITs with shorter-term leases as well as retail operators with more flexibility in setting lease rates.
Performance of U.S. REITs (IYR, VNQ) has been good, but international REITs like RWX have done even better while sporting higher yields. Greater alpha is nice on the way up, but don't think tighter Fed policy won't hit international REITs even harder than domestic ones, says Stephen Cucchiaro. A compromise might be RWO, which splits its portfolio between the U.S. and overseas.
International allocations are sharply higher at Windhaven Asset Management - an arm of Schwab and the biggest player in ETF-managed portfolios. Favorites are international real-estate ETFs (WPS an example), Hong Kong (EWH) and Germany (EWG). Domestically, the funds are overweight tech (QQQ).
Developed real estate ex-U.S. (WPS) continues a torrid run, both absolutely and measured against U.S. real estate (IYR, VNQ). Though its holdings are concentrated in Asia and Australia, WPS began its outperformance right around the time of Mario Draghi's "whatever it takes" remarks concerning EMU. WPS +31.5%, IYR +13.5% YTD.
Developed real estate ex-U.S. (WPS) holds its ground over the last 2 months as domestic property (IYR) falls more than 7%. YTD, WPS is up 25.4% vs. an 8.7% gain for IYR. Another international fund, VNQI - holding many of the same stocks, but less top-heavy - has posted an even greater return, +28.1%.
Developed real estate ex- U.S. (WPS) continues to add to its sizable lead over domestic property (IYR, VNQ), with all of the outperformance coming since late July. The fund's largest holdings are concentrated in Asia - Japan, Hong Kong - with a bit of Australia and Europe thrown in.
Trailing U.S. real estate (IYR, VNQ) badly for much of the last month, the past few sessions have been especially good for developed real estate ex-U.S (WPS). On a YTD basis, WPS continues to outperform domestic property by about 600 basis points.
Price matters. Real estate funds have trumped all other categories of stock fund over the last 3 years, not because the underlying assets have great fundamentals, but because the class "was priced for bankruptcy" in 2009. Now the fundamentals are turning. Some favorites: VNQ, SPG, AVB, FNIO, ICF, IFGL.
Real estate ex-U.S. outperformed U.S. real estate this month, WPS +4.9% (45 minutes before the close) vs. IYR and VNQ, each up about 2.5%. Over the last year though, it's not close, with U.S. real estate outperforming ex-U.S. by 1500 basis points or more (depending on the ETF), the divergence beginning last last fall.
Morgan Stanley (MS) has reportedly had to return around $700M to investors in its flagship global real-estate fund, and has been forced to cut the fund's fees following lackluster performance. The concessions have persuaded investors to give the fund an extra year, until June 2013, to invest.
Global value of REITs is expected to build on its 2009 rebound, Ernst & Young says, pointing to coming IPOs in the $500M-$1B range - they're "working on several around the country" - and possibly more M&A activity. (ETFs: RWX, IFGL)