by Aaron Levitt | August 30, 2013 10:34 am
Currently, the United States only represents about 30% of the total global real estate market.
That leaves plenty of room for U.S. investors to capitalize on the opportunities in the international space. Since the mid-90s, nearly 30 different countries — from Singapore to France — have adopted the real estate investment trust tax structure.
By focusing our real estate dollars outside of the United States borders, we gain access to inefficiencies in pricing. Globalization, while giving emerging areas access to capital investment, has not changed the supply and demand dynamics or other local operating characteristics intrinsic to real estate markets.
Yet, as Charles Sizemore points out, it can be difficult for regular retail investors to get their hands on shares of individual international REITs. Although international exchange access is growing, many investors still don’t have local access in their brokerage accounts, while ADRs of global REITs barely trade at all.
The secret is to think broad and exchange-traded. The exchange-traded fund boom has provided all the firepower investors need to gain access to various foreign landholders and REITs. Here are three of the best.
Leave it to low-cost leader Vanguard to craft one of the cheapest options for investors in the sector. The Vanguard Global ex-US Real Estate ETF (VNQI) tracks the S&P Global ex-U.S. Property Index, which provides exposure to international real estate stocks in both developed and emerging markets.
That’s nearly 425 holdings in 35 different countries.
The $1.1 billion fund is heavily weighted in the Asia-Pacific, with Japan clocking in at 24% of VNQI’s holdings. That’s understandable, as Japan was one of the first nations to adopt the REIT structure after the U.S. Hong Kong, Singapore, Australia and the U.K. round out the top five.
That focus on Asia hasn’t really hurt the fund since its inception in 2010. While VNQI is down about 3% this year, the fund has produced a 6.25% annual total return since its launch, while paying a nice 3.27% dividend. All of this for a Vanguard low price of 0.32% — or $32 per $10,000 invested — in expenses.
If you’re not too keen on holding emerging market real estate firms, then the iShares International Developed Real Estate (IFGL) could be for you. The ETF tracks a FTSE and NAREIT designed index that covers real estate firms in Canada, Europe, and Asia. However, IFGL sticks to strictly the developed world — sans a token 1.98% exposure to China — and covers both REITs as well as Real Estate Development companies.
Despite not focusing on just tax-efficient REITS, IFGL manages to pay out on hefty dividend yield. The funds 193 holdings kick out a trailing 12-month yield of 6%. That’s nearly double the previously mentioned Vanguard fund.
However, that hefty dividend does come at a price. In this case it’s a higher expense ratio — at 0.48% — as well underperforming the Vanguard fund.
For those investors looking to simplify their U.S. and international real estate holdings into one ticker, the SPDR Dow Jones Global Real Estate (RWO) is the answer. The fund holds both domestic and international real estate firms, roughly split at 50-50. This provides a balanced approach to REIT investing.
It also provides a balanced yield. The fund’s current distribution falls in the middle of the pack at an average of 4.71%. However, that number has swung wildly quarter to quarter as international firms tend to pay dividends just twice a year, with the larger payment coming in December.
Nonetheless, RWO’s 0.50% in expenses and dual U.S./International focus could make it a prime pick for investors wanting some taste of the foreign real estate.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
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