Going Global With A Real Estate ETF

Adding some global flair to real estate investing, including real estate investment trusts and the related exchange-traded funds is paying off for investors this year. Year to date, the FlexShares Global Quality Real Estate Index Fund GQRE is up 7.6 percent compared to a gain of 2.6 percent for the Vanguard REIT ETF VNQ, the largest REIT ETF in the U.S.

GQRE tracks the Northern Trust Global Quality Real Estate Index, which “is designed to maximize exposure to quality, value and momentum factors, within a universe of companies operating in the real estate sector,” according to FlexShares. “The proprietary Northern Trust quality factor (henceforth referenced as the Northern Trust Quality Score or NTQS) is used to identify companies that exhibit strength in profitability, management expertise and cash flow, while value and momentum factors are included to help provide long term capital appreciation and also mitigate risk.”

The ETF, which turns four in November, holds 166 stocks and has $220.2 million in assets under management.

Reasons To Roll With REITs

One of the primary reasons investors embrace REITs and REIT ETFs is yield. GQRE does not disappoint on that front as highlighted by a trailing 12-month yield of almost 3.3 percent. However, there are other reasons to consider this asset class.

“Need a hedge against long-term inflation?” said FlexShares in a note. “Real estate has often demonstrated its effectiveness, along with common stocks, in helping investors achieve this goal. Due to low correlation (i.e. linkage or dependency) with securities, we believe real estate can be used for portfolio diversification to provide access to income growth.”

GQRE features exposure to six REIT industry groups — commercial REITs, development and operations, specialized REITs, residential REITs, diversified REITs and real estate services.

A Global Approach

GQRE features exposure to 10 countries, including a 51.4 percent allocation to the U.S. REITs. Just as are U.S. REITs, REITs domiciled in other countries are sensitive to local interest policies. For GQRE, the good news is four of its country allocations have negative interest rate policies and only the U.S. and Australia can be considered high. In reality, U.S. and Australian interest rates are not high at all, they are merely high relative to other developed markets.

For many investors, REIT ETFs are a practical idea for garnering exposure to this income-generating assets class.

These funds “may deliver a cost-effective method for exposure to high-quality real estate. Investors may enjoy lower fees, transparency, and liquidity. RE ETFs may provide more diverse exposure to companies across markets than REITS or singular common stocks purchases alone. We believe for investors with long-time horizons, RE ETFs may provide enhanced total returns,” said FlexShares.