International REIT ETF: Finally Foreign REIT ETFs for Individual Investors
Real estate’s lustre has certainly dulled recently. At least that’s the case in the US. Regardless, real estate is still an important element of diversified portfolio and, in the form of an ETF, also offers the opportunity for dividends that are higher than typical basket of stocks. While may people own their own homes, I’ve instead decided that buying a house is not the right choice for me. Instead, I aim to keep a certain percentage of my portfolio invested in real estate investment trusts (REITs).
While domestic REIT ETFs have been available for quite some time, exposure to the international real estate market has been missing. Fortunately, the usual suspects eventually moved ahead with plans to fill this gap.
First to the table was State Street Global Advisers in back in December of 2006 with the Dow Jones Wilshire International Real Estate ETF (RWX). This ETF provides easy access to the otherwise hard to reach real estate market in developed (mostly) and emerging market countries. Note that a majority of the ETF focus is on developed countries such as Australia, Hong Kong, Japan, and the UK. Also, the ETF isn’t purely focused on real estate or REITs due to regulation differences in some countries. In exchange for an expense ratio of 0.59%, when launched the State Street ETF aimed to maintain investments in 142 of the 161 stock that make up the index.
In second place is Barclays Global Investors with two offerings: iShares S&P Dev ex-US Property (WPS) and iShares FTSE EPRA/NAREIT Dev Real Estate (IFGL). These two share some similarities so be sure to scrutinize the prospectus to identify which is the most appropriate for you. For example, the top 3 country allocations for both ETFs are Japan, Hong Kong, and Australia, but the percentage for each differs by a a few points. In the spirit of full disclosure please note that at the time of this writing I owned shares of IFGL. Both of these iShare’s ETFs have an expense ratio of 0.48% which is better than RWX (mentioned above).
WisdomTree’s International Real Estate (DRW) is also an option, but like the two offerings from iShares, the top 3 countries are pretty much the same. All other things equal, I’d go for an ETF with more liquidity. There is, however, a bit of an oddball in the form of the SPDR Dow Jones Global Real Estate (RWO). While the focus of the other ETFs is on international real estate, the offering from SPDR includes the US. In practice this means that over 50% of RWO is invested in the US making it a way to get global exposure in one shot, but otherwise not the best option for pure international exposure.
As you can probably tell, these ETFs focus on developed markets. You’re going to have to look elsewhere if you’re looking for significant exposure to emerging markets.