Investing in Global Real Estate Markets with a Global REIT ETF

As US housing market tumbled in 2007, REIT (real estate investment trust) investors have suffered big losses from their investments so far this year. In fact, 2007 is on track to become the first losing year for REIT investors since the beginning of the century. Year-to-date, the Dow Jones Equity All REIT Index (^DJR) has lost nearly 14% of its value (as shown in the following chart).

While US housing market is still searching for bottom and no recovery is expected till next year the earliest, real estate investors could look overseas for growth and that can be easily done with the newly introduced global REIT ETF from First Trust. Late August, First Trust Portfolios launched the first global REIT exchange-traded fund (ETF), the First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund (FFR). FFR tracks FTSE EPRA/NAREIT Global Real Estate Index. According to the fund’s prospectus, the index is “designed to measure the stock performance of companies engaged in specific real estate activities of the North American, European and Asian real estate markets.” The Index is a modified market capitalization weighted index, based on free float market capitalization and will be rebalanced and reconstituted every quarter.

From the fund’s fact sheet (PDF), right now the fund’s country weights are as follows. It is quite heavy on the US market which has the largest share. However, despite that the US subprime fallout has sent global financial markets into turmoil which could slow the growth of global economy, local real estate markets in those countries may not feel the pain from what is happening here in US.

1. United States: 37.92%
2. Japan: 12.72%
3. Australia: 11.96%
4. Hong Kong: 9.52%
5. United Kingdom: 9.45%
6. France: 3.77%
7. Canada: 3.54%
8. Singapore: 2.75%
9. Austria: 2.02%
10. Netherlands: 2.01%
11. Other: 4.34%

The fund’s net expense ratio (ER) is 0.60%, with a dividend yield of 3.27%. Currently, the fund hold 305 stocks and the top 10 holdings are:

• Westfield Group
• Sun Hung Kai Properties Ltd
• Mitsubishi Estate Company, Ltd.
• Simon Property Group, Inc.
• Mitsui Fudosan Company, Ltd.
• Unibail-Rodamco S.A.
• Land Securities Group Plc
• Vornado Realty Trust
• ProLogis
• Sumitomo Realty & Development Co., Ltd.

There are several other international REIT ETFs available as well, including

• SPDR Dow Jones Wilshire International Real Estate ETF (RWX)
• WisdomTree International Real Estate Fund (DRW)
• iShares S&P World ex-U.S. Property Index Fund (WPS)

In addition to ETFs, investors can also use mutual funds to tap into the foreign real estate markets. Last December, Kiplinger’s Personal Finance ran an article on global real estate investing with a few funds as examples:

• Alpine International Real Estate Equity fund (EGLRX)
• Fidelity International Real Estate (FIREX)
• Northern Global Real Estate Index fund (NGREX)
• Cohen & Steers Asia Pacific Real Estate Securities (APFAX)

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