This international real estate play is focused on fast-growing Asia, writes Paul Tracy in High-Yield International.
The WisdomTree International Real Estate ETF (NYSEArca: DRW) is an exchange traded fund designed to track the performance of real estate companies in developed markets outside the US and Canada. The list of real estate companies includes developers, operators, and real estate investment trusts (REITs). The fund pays quarterly distributions that typically consist of three smaller payouts and a large distribution paid near the end of each year. In 2010, WisdomTree paid out a total of just under $2.66 per unit, equivalent to a yield of 9.2% at current prices.
While the ETF invests in all developed countries outside the US and Canada, it has a strong allocation to Asia, with more than a quarter of the fund invested in Hong Kong real estate firms, 17.5% in Australia and 16.3% in Japan.
In the wake of the real estate boom and bust of the past decade, many investors shy away from firms involved in commercial and residential real estate. But that's a mistake. Not all real estate markets around the world have become bubbles. In some countries, strong real estate prices are supported by solid fundamentals such as fast-rising incomes and strong employment gains.
For example, while rising interest rates are beginning to cool the Australian real estate market slightly, the nation has enjoyed a boom over the past few years thanks to a number of supportive trends. During the global financial crisis, Australian banks were not as hard hit as their peers in the US and developed European countries and remained in a better position to lend. Meanwhile, Australia is rich in natural resources and a commodity boom has pushed unemployment down to near multi-decade lows.
Thanks to strong economic conditions in Australia and New Zealand, more than 99.5% of Westfield's portfolio is leased and store rents are up a healthy 3.7% year-over-year.
Meanwhile, Hong Kong-based Cheung Kong Holdings is one of the largest developers of residential, retail, industrial, commercial, and hotel properties in Hong Kong. Hong Kong residential property prices have risen strongly since their early 2009 lows under HK$3,500 per square foot to recent highs above HK$5,000 per square foot. The local market is benefiting from several major long-term trends, including an influx of foreign nationals, relatively low consumer debt levels and, of course, a halo effect from solid growth in mainland China.
With a yield above 9% and exposure to some of the world's most promising real estate markets, the WisdomTree International Real Estate ETF is a solid diversified play with growth potential. Given its exposure to the often volatile real estate markets, the fund carries moderate risk.