Equity: Global Ex-U.S. Real Estate
Six ETFs compete to provide exposure to global real estate outside the United States. Five of those funds follow a straight-ahead market-capitalization weighting methodology, so they
“The right choice here depends on your investment goals.” provide broadly similar exposure. The outlier fund, DRW, uses a dividend history to select and weight its holdings. Despite the apparent similarities between most of the funds here, there are sizable differences in important aspects like liquidity, cost and the exact exposure that each provides.
Most notable are the wide disparities in the ease of trading these funds: The most popular of them, RWX and VNQI, often trade multiple creation units' worth of shares per day. The other options, while less liquid are viable alternatives for buy-and-hold investors. The less liquid ETFs often have wider bid/ask spreads, meaning an investment in them will almost certainly incur higher trading costs that should be factored into an investment decision.
Underlying exposures of these ETFs differ substantially too, even among the market-cap-based funds. VNQI holds more companies from more countries than any of its competitors. RWX, even with 100+ holdings, allocates primarily to just five countries. The two iShares offerings here both track global real estate exclusively from developed markets which have major ramifications for their country exposure and diversification.
DBRE holds a nearly identical index to RWX, but hedges against currency movements for USD-investors, so its performance may look very different from RWX's. Essentially, the fund is a dual bet on both international real estate and a strong dollar.
All told, there are choices to be made in the ex-U.S. real estate space. The right choice depends on your investment goals. For the liquidity-concerned, RWX is the top choice. For clean exposure and cost, VNQI (our Analyst Pick) is unquestionably the best fund in the segment. And lastly, for investors who are focused exclusively on income, DRW is the best option. (Insight updated 07/25/16)
All Funds (8)
VNQI $3.74 B 3743379969.66 Well Diversified
DRW $81.56 M 81564530 Dividend weighted
IFGL $494.48 M 494478000 Developed markets
RWX $3.6 B 3601767154.6231 Liquid
WPS $131.66 M 131661910 Developed markets
HDRW $2.57 M 2569822.7888 N/A
DBRE $3.29 M 3285171.901 new, trade with care
HREX $1.76 M 1755324.35 new, trade with care
ETF.com Grade as 03/16/17
Equity: Global Ex-U.S. Real Estate
ETF.com Efficiency Insight
There are multiple contenders for the title of segment's most Efficient fund. Vanguard’s VNQI is a strong entry: it has the segment’s lowest expense ratio by a substantial
“the most popular ETF in the segment actually costs the most...” margin and it rebates all securities lending net revenue to the fund, potentially reducing costs further. Transparency concerns drag down VNQI's efficiency score slightly as it only discloses holdings monthly with a lag.
RWX—the most popular ETF in the segment—actually has the highest expense ratio annually. However, with the help of securities lending and tight tracking, the fund claws back the majority of its stated fee. WisdomTree’s DRW is only slightly cheaper than RWX, but that fund is angling for the dollars of income-focused investors who will likely shrug off its higher fee. The two iShares funds, IFGL and WPS, get dinged in securities lending as iShares rebates only 75% of gross revenue back to investors.
DBRE is a new launch as of April 2015, which has yet to attract much market share.
Overall, a number of fairly efficient options are available to choose from in the segment. (Insight updated 07/25/16)
ETF.com Tradability Insight
Tradability is really the area where these funds differentiate themselves. The best funds here have quite deep liquidity, consistent volume and trade with tight spreads. The worst funds see
“RWX and VNQI are the clear favorites for traders” just the opposite: thin volume and wide spreads.
RWX and VNQI are the clear favorites for traders in the space. The two funds sees the highest median volume in the segment, which helps keep spreads tight.
IFGL trades with significantly less volume than RWX and VNQI, and spreads are a notch wider. Still, the fund sees enough liquidity to be accessible for most investors.
Moving down the list, WPS and DRW are going to be harder to access for all but the smallest investors. The funds see lukewarm liquidity and uncomfortably wide trading spreads. Still, if you like the investment theses of the two funds, their high trading costs may be an acceptable expense—just use careful limit orders.
Lastly, new launch DBRE just hasn't attracted enough investor assets to support a healthy trading market. In fact, the fund barely trades at all. Limit orders are a must, but be prepared to wait a long while for execution.
All funds here see at least decent block liquidity. WPS, DRW, and DBRE earn one notch less than a perfect score, largely because their weak secondary markets mean that market makers are likely to charge an extra premium for their trouble in disposing of partial blocks. Otherwise, institutional traders should have little trouble creating and redeeming shares of these funds. (Insight updated 07/25/16)
ETF.com Fit Insight
Five of the six funds here track market-capitalization-based indexes, but that doesn’t mean their exposures are identical.
The first main divergence is that the two iShares ETFs,
“VNQI provides a diversified base” IFGL and WPS, track real estate only from developed economies. That makes for large geographical tilts away from the big emerging markets such as China and Brazil. These two funds concentrate in big developed economies with the bulk of their weight often invested in just a handful of countries. Both have particularly heavy exposure to Japanese real estate firms.
Of the two established market-cap weighted funds that tackle broad markets (VNQI and RWX), neither resembles broad vanilla exposure. VNQI provides a diversified base that holds real estate from over 500 companies in more than 30 countries. RWX has a smaller holdings base—closer to 120 names—and generally holds real estate from fewer regions than VNQI. It also omits mainland China exposure entirely—an oversight that will disappoint many investors. New launch DBRE tracks the same index as RWX, but hedges against currency movements for USD-based investors.
Closing out the lineup, DRW veers away from the market-capitalization approach in favor of dividend weighting. The fund selects and weights its securities according to cash dividends, so it ends up with a portfolio quite different from the market. Sectorwise, it doesn't stray too far from the market (primarily real estate development), but geographically, it has some big tilts. In any case, country weightings are likely of secondary importance to investors considering DRW: The real reason to invest in it is for its dividend slant. In that regard, DRW pays off. It has the highest dividend yield in the segment. (Insight updated 07/25/16)