Going Global

Currently, the U.S. only represents about 30 percent of the global real estate market. Given that small amount, real estate investors may want to break out their passports. Since the mid-’90s, nearly 30 countries have adopted the REIT tax structure. This has opened up these various markets to global investors and has helped the sector’s market capitalization to expand several fold. According to indexer FTSE, there are now over 280 international REITs representing an $825 billion global marketplace.

Aside from tapping these various markets for diversification benefits, investors may also want to expand their REIT focus to include international firms for another reason––a weakening U.S. dollar. According to industry group NAREIT, from 1990 to 2009, when the U.S. dollar was falling against the Japanese yen, average total returns for investors were 12.1% per year for investments in Asian REITs. However, 10.4 percent of that return was from currency gains and just 1.7 percent was from the REITs themselves. The industry group found similar results for Europe.

Those added currency gains have helped funds like the SPDR Dow Jones International Real Estate (RWX) and the iShares FTSE EPRA/NAREIT Developed REIT ex-US (IFGL) provide great returns as well as bigger yields than their domestic counterparts. Currently, both RWX and IFGL yield 6.2 percent and 5.51 percent, respectively.

The Bottom Line

For investors, the appeal of adding real estate to a portfolio is simple: the asset class can provide stable, high and inflation-fighting income, all while providing diversification and non-correlation benefits. All of these advantages are only enhanced when placed in the exchange traded funds. While the sector has experienced a few hiccups in the recent past, real estate deserves a place in modern portfolios.

 

Aaron Levitt writes for ETFdb, which offers a comprehensive and original ETF database and analytical consulting services for advisors and investors, as well as a free newsletter. Learn more about their services by visiting ETFdb.com.  Disclosure: the author had no positions in the securities named in this article at the time of writing.
 

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