Equity: Global Real Estate
Fresh competition came to the global real estate segment in 2014. Long-established behemoth RWO still leads in assets, which gives it an unmatched liquidity advantage that makes it the
“REET charges just a fraction of RWO's fee” obvious choice for frequent traders. But long-term investors will want to consider the newcomer, REET, which charges just a fraction of RWO's fee. Both funds hold broad, neutral portfolios with moderate biases toward commercial REITs and the US.
GRI is the most representative global real estate fund, with just a moderate large-cap tilt resulting from its restriction to only 75 companies. It's been around as long as RWO, and has a stable (if modest) asset base, so it likely isn't going anywhere. Still, weak trading, a higher-than-average price tag and mediocre index tracking make it unattractive compared to peers.
GQRE is one of two funds that don't try to track the neutral market. But despite its screens for quality, momentum and value, it doesn't look all that different from our benchmark. The fund gets passing marks for Efficiency and Tradability, so investors that like its "smart beta" methodology should keep it in mind.
The newest fund, SRET, takes radical steps away from neutral in an attempt to boost yield. The fund bets heavily on specialized REITs in the US and Canada, and avoids large-caps all together in its portfolio of just 30 securities. It's worked though—SRET boasts a yield that's leaps and bounds above the competition. Total return is what matters in the long-term though, and SRET hasn't attracted any significant capital to-date. Trade carefully. (Insight updated 01/23/17)
All Funds (7)
REET $315.56 M 315564480 very low fee
RWO $2.52 B 2524355068.7 best liquidity
GRI $80.06 M 80060680 weak trader
GQRE $194.08 M 194079461.2549 smart beta
PRME $950.85 K 950850.03248 growth play; low income
SRET $39.35 M 39345595.665602 new; trade with care
OLD $4.75 M 4753883.7693 N/A
ETF.com Grade as 01/19/17
Equity: Global Real Estate
ETF.com Efficiency Insight
Two funds stand out in the area of Efficiency. SSgA's RWO is the segment's oldest fund (tied with GRI) and holds the bulk of the segment's assets. While it charges a middling
“RWO effectively pays investors to hold it” expense ratio, a strong securities lending program has allowed RWO to consistently claw back its entire fee and then some, effectively paying investors to hold it.
iShares' REET does well in Efficiency for different reasons. It's far less established than RWO—it only launched in 2014—and the fund's asset base is small enough to warrant careful monitoring (though we don't currently see any undue closure risk). Despite these concerns, REET's management fee blows its competitors out of the water. We don't yet have enough data to display detailed tracking statistics, but the preliminary results look good—not surprising given the minimal drag created by fund expenses.
GQRE and GRI form a second tier of Efficiency. Both funds are somewhat expensive—comparable to RWO, but without that fund's substantial lending income to offset the costs. Their index tracking results are in line with their fees, with both funds exhibiting a bit more tracking volatility than we'd like to see. Both have mediocre asset bases that are nonetheless sufficient to stave off any significant closure risk. In short, both GQRE and GRI are serviceable investment vehicles, if unremarkable ones.
SRET, launched in early 2015, charges a fee that's marginally higher than its closest competition's. That seems to be inhibiting investor interest—SRET has little more than seed capital—though the fund is still too new to write off as a flop. We'll have full scoring in late 2015. (Insight updated 01/23/17)
ETF.com Tradability Insight
RWO is easily the most popular fund in the segment, and it shows in its better liquidity. There's enough volume here for almost anyone, though average quoted spreads surprisingly
“RWO is the more popular fund, and it shows in its better liquidity.” aren't minimal. Use careful limit orders, and don't forget to consider trading costs in your P&L math.
GQRE, REET and GRI are all accessible for dedicated long-term investors, but frequent traders should avoid them. Don't put too much faith in the average spread figures quoted here—low volume implies shallow order books that could easily be blown open by even modest trades.
New launch SRET has yet to find its footing, and won't be easy to buy and sell in the meantime. Careful limit orders are a must.
Block trades are a similar story. RWO should be easy to move in large blocks with the assistance of a liquidity provider. The second tier funds should be easy to move too, but expect to pay an extra premium: GQRE's underlying basket isn't very liquid, REET charges a significant creation fee, and GRI's basket mostly trades outside of US trading hours. All of these issues pose an obstacle to market makers, who will pass those costs on.
SRET can be traded in blocks, but not easily. It faces liquidity issues coming and going: the fund's underlying basket isn't very liquid, and APs will have trouble disposing of partial blocks due to poor secondary liquidity in the ETF. (Insight updated 01/23/17)
ETF.com Fit Insight
No fund here is broadly representative of the global real estate market, though some come closer than others.
GRI comes closest, despite holding a concentrated portfolio of just 75
“SRET sports the segment's highest yield by far” companies. Like our benchmark, it holds just under half its portfolio in the US, with the bulk invested in commercial REITs and real estate development firms. In this case, winnowing the sector down to so few names means cutting off the bottom end of the market—GRI nearly ignores the small- and micro-caps that make up roughly a quarter of our benchmark, tilting the fund large.
RWO and REET also aim for neutral exposure. Both funds hold more than 200 names, but lean heavily toward commercial REITs at the expense of development companies, and have a bias toward the United States.
GQRE tries to outperform using systematic screens for quality, momentum and value. Despite these screens, it actually looks quite similar to our neutral benchmark on a sector, country and size basis. However, its performance has deviated enough that it's clear other factors are at work here.
SRET will likely sport the segment's lowest Fit score once scoring is available in late 2015. The fund attempts to maximize yield while minimizing volatility, holding just 30 firms in the process. We see a strong bias toward mid- and small-caps in the US and Canada, with a heavy bet on specialized REITs. The strategy seems to be working—in that SRET sports the segment's highest yield by far—but remember that total return is what matters in the long-run. (Insight updated 01/23/17)