BGI Launches International REIT ETF

August 06, 2007

BGI throws its hat into the increasingly crowded international real estate ring.

It really was just a matter of time.

BGI decided to fill one of the rare holes in its broad exchange-traded fund (ETF) line-up last week with the launch of an international real estate ETF.  The iShares S&P World Ex-US Property Index Fund (NYSE ARCA: WPS) began trading on the NYSE Arca on Friday. The fund tracks the S&P/Citigroup BMI World ex-US Property Index. BGI is positioning the new ETF as a complement to its group of seven U.S. REIT and real estate ETFs.

"The iShares S&P World ex.-U.S. Property Index Fund meets several important needs of investors - accessing a market with a cost effective, tradable investment vehicle and diversification beyond what U.S. real estate can provide," said Noel Archard, head of U.S. iShares Product Development. He added that many U.S. investors find it difficult to invest in the international real estate market because of issues like high costs, poor access and lack of liquidity.

The international real estate industry is drawing a lot of attention as the domestic real estate situation continues to deteriorate and international markets as a whole continue to outperform. But still, there aren't really that many U.S.-listed ETFs focusing on the segment-just two. The SPDR Dow Jones Wilshire International Real Estate ETF (AMEX: RWX) tracks the Dow Jones Wilshire Ex-U.S. Real Estate Security Index and charges a 0.60% expense ratio. The WisdomTree International Real Estate Fund (NYSE ARCA: DRW) tracks the company's proprietary index and carries a slightly cheaper expense ratio of 0.58%. The iShares fund trumps both of these with an expense ratio of just 0.48%.

While the RWX has roughly 150 components, the WisdomTree ETF has about 200. However, both are heavily weighted toward Australia, at roughly 21% and 34%, respectively. The new BGI fund is based on an index that has more than 330 components, and its largest country is Japan at roughly 22%, followed closely by Australia. (See top country comparison below)

All three funds include Westfield Group as their largest component, while Land Securities Group PLC is also included in the top ten holdings for all three. The DRW is weighted by regular cash dividend, while the other two ETFs are weighted by market capitalization.

On a yield basis, the WisdomTree fund has the largest yield, according to data from Morningstar. It also has the lowest P/E ratio. Both are likely as a result of its dividend weighting methodology.  The tradeoff for those higher yields is intense country weightings, including the massive 34% weight in Australia, the 59% weight in Australia and Hong Kong combined. Both WPS and RWX offer more balanced country exposure, including significantly higher exposure to Japan.

INDEX COMPARISON

Fund

Ticker

Prospective P/E

P/B

Yield

Ave. Mar. Cap.

ER

iShares S&P World ex-U.S. Property Index

WPS

21.28

1.2

4.5%

N/A

0.48%

SPDR Dow Jones Wilshire International Real Estate

RWX

19.4

1.2

3.6%

$6,228

0.60%

WisdomTree International Real Estate

DRW

18.5

1.2

5.5%

$5,663

0.58%

*Data as of 8/3/2007, via Morningstar and S&P. Ave. Mar. Cap. is average market capitalization in $US millions.

 

TOP FIVE COUNTRY ALLOCATIONS

WPS

RWX

DRW

Japan

22.48%

Australia

21.16%

Australia

34.07%

Australia

19.99%

Japan

19.87%

Hong Kong

24.91%

Hong Kong

15.28%

UK

16.06%

Japan

10.80%

UK

6.47%

Hong Kong

7.74%

UK

7.45%

Singapore

5.63%

France

7.74%

Singapore

7.22%

*Data as of 8/3/2007, from BGI, State Street Global Advisors and WisdomTree.

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