Riding High with Global Economy, International REITs Offer Currency and Inflation Hedge

The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).

International REITs (RWX, DRW, IFGL) have risen along with global economic recovery. The sector suffered staggering loss in 2008: SPDR Dow Jones Intl Real Estate (RWX) had 51% loss, WisdomTree International Real Estate (DRW)  -57% and iShares FTSE EPRA/NAREIT Dev Real Estate(IFGL)  -52%. Since then, the sector has recovered dramatically, though from the following table, they still have negative annual returns in the last 3 years. 

As of 3/04/2011

In the current economic cycle, barring from an abrupt economic slowdown, international REITs offer the following advantages:

• They offer  international diversification, both among risk equity assets and REITs. 
• They offer inflation hedge: traditionally, REITs are reasonably anti-inflation: as landlords, the real estate operators can raise rents when inflation rises. 
• They offer dollar hedge: in the era of dollar depreciation due to high debt in the U.S., REITs abroad make perfect sense. 

If we dig deeper on the holdings of SPDR Dow Jones REITs (RWX), we can see its top ten holdings:

The top two countries Japan and Australia have strong currencies agaist U.S. dollars. This does bode well with the long term dollar weakness. 

In conclusions, international REITs offer several advantages in building a portfolio. As always, the view should be taken in an overall asset allocation strategy. This is especially true in today's highly overvalued and overbought markets. 

Symbols: RWX,SPY,IYR,VIG,IDV,VYM,EEM,PID,EFA,FVD,DVY,PEY,SDY,PFF,

Disclosure:

MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.