Geographic Breakdown of 7 High Yield International Real Estate ETFs

by: Zvi Bar

Many long-term investors believe that real estate investments are essential to a portfolio, both because of a relatively low correlation with equities and bonds and because real estate is believed to be a good historic inflation hedge and general wealth storage option.

Beyond owning your own home, which is arguably not an investment, investing in real estate is often aggravating. Many things can go wrong and most equity and bond Investors prefer wholly passive investments, while managing real estate can be difficult, expensive and time consuming. Further, many individuals lost considerable sums of money from buying rental properties at prior lofty prices. Nonetheless, these difficulties and previous bubbles are no reason to avoid real estate completely. If anything, the general sentiment indicates that real estate is and will continue to be a contrarian’s investment for a few years.

REITs Generally Provide Real Estate Exposure & Above Average Yield

The easiest way for investors to gain exposure to real estate is through real estate investment trusts ("REITs"). REITs own and usually manage income-producing real estate. Some REITs make or invest in loans and other paper that is secured by real estate collateral. Many large REITs are publicly traded, though there are numerous private ones. REITs come in all sizes and in a wide array of specific property sectors/types, including apartments, office space, shopping centers, hotels and hospitals, among others.

REITs distribute at least 90 percent of their taxable income to shareholders in the form of dividends in order to avoid corporate taxes. REITs generally have sizable yields, but it also must be noted that due to their pass through accounting these dividends are taxed at the investor's income tax rate an not the general dividend rate. This means that the tax bill on a REIT dividend can be 2-3 times as large as it would be on a comparable corporate dividend.

High Yield International Real Estate ETFs

Many homeowners may fear further real estate investments, fearing that their home already provides significant exposure to real estate values. Most U.S. investors have the majority of their investments in domestic products, whether they are in property, equity or bond form.

While many foreign markets are largely are considered riskier, opinions vary and the diversification that is gained through international exposure is often more advantageous than through merely adding greater diversification within a domestic portfolio. Several developed, first world foreign markets are reasonably stable. Additionally, exposure to real estate in developing markets often brings with it exposure to natural resources, industrial production and the vertical social mobility of the emerging populous.

For those that do not want to risk speculating with an individual name or property type, especially in a foreign land, a broader ETF may be preferable and also potentially provide the investor with exposure to foreign real estate. Generally, foreign real estate is considered higher risk and provides a higher corresponding yield. Of course, domestic real estate can also be high risk.

Below are seven Real Estate ETFs that provide exposure to global REITs and/or other business organizations that have real estate exposure. I have also provided information as to the ETF’s current yield, expense ratio and geographic exposure. Beyond the compelling yields offered by these ETFs, they also have reasonably low expense ratios when compared to mutual funds that invest in real estate and/or foreign markets.

  • iShares FTSE EPRA/NAREIT Dev Asia Index (NASDAQ:IFAS)
    • 5.18% yield
    • 0.48% expense ratio
    • Where: 96% Asia; 4% U.S.
    • Asian exposure breakdown: 25% Japan; 24% Australia; 46% Other Developed Asia; 1% Emerging.
    • 5.33% yield
    • 0.48% expense ratio
    • Where: 100% Developed Europe
    • European Exposure Breakdown: 38% United Kingdom; 62% Developed Europe.
  • iShares S&P Dev ex-US Property Index (NYSEARCA:WPS)
    • 5.18% yield
    • 0.48% expense ratio
    • Where: 67% Asia; 28% Europe; 5% U.S.
    • Asian Exposure Breakdown: 21% Japan; 16% Australia; 30% Other Developed Asia.
    • European Exposure Breakdown: 9% United Kingdom; 18% Developed Europe.
    • 5.92% yield
    • 0.48% expense ratio
    • Where: 62% Asia; 28% Europe; 10% U.S.
    • Asian Exposure Breakdown: 16% Japan; 15% Australia; 30% Other Developed Asia; 1% Emerging Asia.
    • European Exposure Breakdown: 10.5% United Kingdom; 17% Developed Europe.
  • SPDR DJ Global Real Estate (NYSEARCA:RWO)
    • 6.63% yield
    • 0.51% expense ratio
    • Where: 57% U.S.; 27% Asia; 16% Europe
    • Asian Exposure Breakdown: 8% Japan; 9% Australia; 9.5% Other Developed Asia.
    • European Exposure Breakdown: 7% United Kingdom; 9% Developed Europe.
  • SPDR DJ International Real Estate ex-US (NYSEARCA:RWX)
    • 8.3% yield
    • 0.6% expense ratio
    • Where: 56% Asia; 34% Europe; 10% U.S.
    • Asian Exposure Breakdown: 17% Japan; 18.5% Australia; 20.3% Other Developed Asia.
    • European Exposure Breakdown: 14% United Kingdom; 19% Developed Europe.
  • WisdomTree International Real Estate (NYSEARCA:DRW)
    • 8.87% yield
    • 0.58% expense ratio
    • Where: 70% Asia; 30% Europe
    • Asian Exposure Breakdown: 16% Japan; 19.5% Australia; 33% Other Developed Asia.
    • European Exposure Breakdown: 8% United Kingdom; 22% Developed Europe.

The information on geographic exposure can be used to ensure a diverse global real estate portfolio. By reviewing the geographic breakdown of these ETFs, one can discover which option(s) might best supplement their present investments. If an investor is already in any of these ETFs, this information should help identify what geographic regions may not be represented in their portfolio, or where they may be heavily invested.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Yield is but one factor in choosing a proper investment. Investments should be considered on their own merit and relative to the total portfolio of investments.