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Three ETFs for Global Real Estate Exposure
04/26/2019 5:00 am EST
If you take even a casual look at the Forbes list of the world’s billionaires, one thing is absolutely clear: a great portion of their wealth was created not through investing in stocks, but real estate, suggests Carl Delfeld, editor of Cabot Emerging Markets Investor.
Real estate gurus will tell you to buy property in your neighborhood, which is good advice, but the truth is that most of us do not want to deal with all the hassles of managing property. There is an easier way to mimic the real estate tycoons and get more property in your portfolio—investing in real estate investment trusts, better known as REITs.
REITs trade like stocks and give investors the advantage of participating in large-scale commercial real estate projects. REITs must pass 90% of their taxable income through to shareholders. In exchange, they pay no corporate income tax.
There are a wide variety of REITs on the market, ranging from apartments to shopping centers to office complexes to hospitals and various commercial projects. Here are some other REIT advantages:
• Inflation Hedge — Real estate is widely considered to be an effective inflation hedge, with values rising along with higher inflation.
• Strong Income/Dividend Yields — Many REITs offer solid dividend yields, because tax laws require that companies distribute around 90% of their income.
• Conservative Management/Liquidity — Since REITs must typically distribute most if their income to investors, management has less chance to misuse capital. The trading liquidity of REITs has also increased significantly within the last two decades.
• Diversification/Higher Potential Returns with Lower Risk — REITs are a great way to diversify an existing stock portfolio and there are numerous studies by the investment research firm Wilshire that show it can increase returns and lessen volatility.
My advice is to take a global look at property markets since they oftentimes diverge from stock markets and certainly do not move together. Here are three ways for you to put some global real estate in your portfolio by investing in global REITs and ETFs:
iShares Global REIT ETF (REET)
REET’s major holdings include Simon Property Group, Prologis, Public Storage and Avalon Bay Communities.
This fund is invested 65% in the United States, 7% in Japan, 6% in Australia, 5% in the United Kingdom, and the rest in countries such as France, Canada, Singapore, Hong Kong and South Africa.
These are generally developed, strong economies with stable real estate markets.REET represents a low-cost, conservative way to get into the global real estate game.
WisdomTree Global ex-US Real Estate ETF (DRW)
DRW is a basket of international real estate companies weighted by dividends. It is up 17% so far this year with the top country weightings from Hong Kong, Singapore, Australia and Canada accounting for 63% of exposure.
DRW is a bit thinly traded but is a good play on international real estate markets.
Invesco China Real Estate ETF (TAO)
A more aggressive pick would be TAO, which is based on the AlphaShares China Real Estate Index tracking the performance of publicly traded companies and REITs in China, Hong Kong and Macao. TAO has an impressive dividend yield of 6.3% and shares are up 25.6% year to date.
These three ETFs are an easy way to put some global real estate in your portfolio with broad diversification, income, transparency and low costs
If you have to choose one of these global REITs, you might wish to start with TAO since the best time to invest in REITs is when they are a bit out of favor but in an uptrend.
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