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

Among dividend paying equity ETFs, REITs continue to out perform other dividend stock ETFs. Both international (RWX) and US REITs (IYR, VNQ) are ranked at the top two spots in the following trend score table. This trend has lasted several months now. For more detailed performance, please refer to here.

Assets Class	Symbols	03/09 Trend Score	03/02 Trend Score	Direction
SPDR DJ Wilshire Intl Real Estate	RWX	9.74%	10.04%	v
iShares Dow Jones US Real Estate	IYR	9.61%	10.0%	v
SPDR S&P 500	SPY	9.41%	10.12%	v
Vanguard Dividend Appreciation	VIG	9.2%	9.09%	^
Vanguard High Dividend Yield Indx	VYM	9.15%	9.39%	v
iShares Dow Jones Select Dividend Index	DVY	8.42%	7.38%	^
First Trust Value Line Dividend Index	FVD	8.22%	7.75%	^
WisdomTree Emerging Market Equity Income	DEM	8.12%	7.59%	^
iShares Dow Jones Intl Select Div Idx	IDV	8.05%	9.23%	v
SPDR S&P Dividend	SDY	7.95%	7.14%	^
PowerShares Intl Dividend Achievers	PID	7.84%	9.12%	v
PowerShares HighYield Dividend Achievers	PEY	7.11%	6.33%	^
iShares MSCI EAFE Index	EFA	6.48%	8.35%	v
iShares MSCI Emerging Markets Index	EEM	6.3%	5.21%	^
iShares S&P U.S. Preferred Stock Index	PFF	3.38%	3.4%	v

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

Description	Symbol	1 Yr	3 Yr	5 Yr	Avg. Volume(K)	1 Yr Sharpe
SPDR Dow Jones Intl Real Estat	RWX	24.45%	-3.57%	NA	312	106.56%
iShares FTSE EPRA/NAREIT Dev Real Estate	IFGL	13.32%	-5.29%	NA	66	65.6%
SPDR Dow Jones Global Real Estate	RWO	27.78%	NA	NA	71	144.86%
iShares S&P Dev ex-US Property	WPS	16.81%	-4.01%	NA	20	79.7%
WisdomTree International Real Estate	DRW	22.25%	-3.97%	NA	32	99.26%

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:

Fund Country Weights
As of 03/08/2011
Japan	18.45%
Australia	18.36%
United Kingdom	13.42%
Hong Kong	12.74%
France	9.35%
Canada	9.15%
Singapore	7.09%
Austria	2.30%
Netherlands	2.21%
Switzerland	2.13%

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,

comments(0)

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.

Market News and Data brought to you by Benzinga APIs

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Comments