Limited Int’l REIT ETF Choice

March 23, 2012

ETF investors looking for a lot of different ways to access non-U.S. real estate markets are likely to be a bit frustrated.

You see, I’ve spent a couple weeks with my head buried in U.S. real estate ETFs, and it’s safe to say just about every reasonable take on U.S. real estate—and a few unreasonable ones as well—are available in an ETF wrapper.

You can own everything from typical low-cost, broad-spectrum funds; to actively managed portfolios to micro-cap REITs. There are 15 funds in all—excluding leveraged or inverse ETFs—that have an exclusive U.S. focus.

But looking at the international real estate segment, there’s a surprising lack of variety—if not actual funds.

There are 12 international REIT ETFs available, which is a decent number. But most of them cover all of the globe’s real estate beyond U.S. borders.

In other words, the coverage of specific pockets of global real estate outside the United States is pretty spotty.

But to be fair, that broad exposure is beyond adequate.

There are nine funds covering the space, and with the addition this week of the UBS double-exposure ETRACS Monthly Pay 2X Leveraged Dow Jones International Real Estate ETN (NYSEArca: RWXL), there’s now a leveraged play available too.

As RWXL’s trading symbol subtly suggests, it’s based on the same index as the SPDR Dow Jones International Real Estate ETF (NYSEArca: RWX), which plays to my point about investors having plenty of choice but little true variety.

Beyond those broad-based, catchall funds, however, the choices are far too limited—all the more so because several of those broadly focused funds have half of their weight in U.S. real estate.

Most glaringly, only one offers exposure to a specific country—the Guggenheim China Real Estate ETF (NYSE Arca: TAO).

That stands in stark contrast to the 15 real estate ETFs dedicated to the United States. With more than $4 billion in assets in the international real estate space, it seems reasonable that the market could sustain real estate ETFs dedicated to the largest economies.

Countries with big economies and big real estate markets, such as Brazil, Japan and India, are all left without single-country representation.

Moreover, there’s not a single ETF on the market that exclusively targets real estate in the developing world. Some of the broad global REIT funds do include emerging markets real estate in their holdings, but none offers pure access.

That’s not to say there aren’t options in the space. The WisdomTree Global Ex-U.S. Real Estate Fund (NYSEArca: DRW) offers dividend-weighted ex-U.S. exposure. The dividend focus is germane to REIT funds, which often draw investors through their high dividend payouts. (DRW gave investors a 5.52 percent dividend yield over the past 12 months.)

iShares comes the closest to offering single-country exposure with its regional real estate ETFs, which are focused on Asia and Europe. Those funds go some way towardletting investors fine-tune their exposure.

But in an ETF environment that in general is so full of choice and variety, and with globalization still very much intact, international real estate has some catching up to do.


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