Global REIT (Real Estate Investment Trust) markets showed major growth in 2007 capturing $900 billion of equities capitalization according to the stats of National Association of Real Estate Investment Trusts (NARIET). Previously U.S and Australia were the major market but today REITs are adopted by many foreign countries. In fact a REIT portfolio should have a strong international flavor and as this gives you better diversification offering better risk adjusted returns.
These are the major country international REITS
(Source: Ernst & young – Global Real investment trust report 2010)
In the recent recession where investors dumped their equity positions and unemployment accelerated, international REITS did not have such a sever shock. Even with the global economic crisis in the past years, we have only seen a few REIT bankruptcies. Recent development in Japan and U.S show the true growth prospect of REIT. Banks have worked with REITs to modify or extend maturities on existing loans rather than force sales in a demanding market.
We show a table of the leading international REIT ETF's.
| Description | Symbol | 1 Yr | 3 Yr | 5 Yr | Avg. Volume(K) | 1 Yr Sharpe |
|---|---|---|---|---|---|---|
| SPDR Dow Jones Global Real Estate | RWO | 20.15% | NA | NA | 72 | 105.86% |
| SPDR Dow Jones Intl Real Estat | RWX | 18.53% | -3.89% | NA | 396 | 79.06% |
| WisdomTree International Real Estate | DRW | 15.37% | -4.43% | NA | 32 | 68.77% |
| iShares S&P Dev ex-US Property | WPS | 8.71% | -4.89% | NA | 25 | 40.76% |
| iShares FTSE EPRA/NAREIT Dev Real Estate | IFGL | 7.25% | -5.91% | NA | 91 | 35.55% |
Most of the REITS have similar results except IFGL and WPS. RWX is the best with a one year yield of 20.47%, best of the three year returns (although not good) and the highest volume. RWX volumes are also very good but all these ETF are new and none them has 5 year yields.
Ernst and young research stats clearly shows the International REITS diversification
(Source: Ernst & young – Global Real investment trust report 2010)
Government also help REITs – for example, U.S REITs are given special tax status to avoid corporate taxes, the corporates will be exempt from taxes if they distribute their 90% of income by way of dividend to investors.
In the UK, the government encourages REITs to own residential property. In Germany government are rescinding their rules of prohibiting REITs from investing in residential property not only this they also provide an incentive of 50% exemption on capital gains tax for institutional and corporate property owners that sell assets to REITs.
In Japan the government also provides a facility for J-REITs to purchase or re?nance bonds coming due and has thereby shored up investor con?dence.
International REITs provides diversity in the real estate sector. By diversifying the portfolio with international REITs we can not only hedge the risk but we can increase our returns too. REITS are a necessary element of a portfolio. Without REITs ETF we lose a major growth opportunity as increasing world population and the demand for property. With the appropriate diversification from International REIT we can increase the potential for better risk adjusted returns.
Symbols: RWX, RWO, DRW, WPS, IFGL
Exchange Tickers : RWX, RWO, DRW, WPS, IFGL
Disclaimer:
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.
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