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Global Real Estate ETFs Scaling Higher: Here's Why
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The real estate corner of the broader market has been a key area of interest lately given the Fed and the ECB’s as well as many other central banks’ dovish stances that has kept the rates subdued globally and increased the appeal for the rate-sensitive stocks.
Additionally, the ebb and flow of U.S.-China trade war tensions, global growth issues and Brexit concerns are making global investors jittery, boosting demand for safe-haven assets like Treasury bonds, which lowers yields.
Flight to safety thus pushed the benchmark U.S. treasury yield to a 1.80% on Oct 21, down from the yearly-high of 2.79% recorded in January. In fact, some parts of the yield curve have inverted this year, sending out recessionary signals (read: 10-Year Yield Below One-Year: Play Leveraged Bond ETFs).
Since real-estate sectors perform better in a low-rate environment, these stocks have every reason to beat the broader market. Also, these stocks are high-yielding in nature, which gives investors another reason to flock to the space in this low-yield environment.
U.S.-based Vanguard Real Estate Index Fund ETF Shares (VNQ - Free Report) has gained 27.7% this year while SPDR S&P 500 ETF (SPY - Free Report) , which yields 1.84% annually, has added 20%.
On the international level, Vanguard Global ex-U.S. Real Estate Index Fund ETF Shares (VNQI - Free Report) , which yields 3.63% annually, has advanced 16.4%. In comparison, all-World ETF iShares MSCI ACWI ETF (ACWI - Free Report) , which yields 2.08% annually, has gained 16.9% in the year-to-date frame.
Global Rates to Remain Low
Dovish central banks in most developed nations have been helping the operating backdrop of the real estate market. Both Eurozone and Japan have been practicing record-low interest rate policies. In fact, in September, the ECB slashed its main deposit rate by 10 basis points to a negative 0.5% — a record low but on par with market expectations — and announced the launch of a quantitative easing (QE) program from Nov 1(read: ETFs to Gain & Lose as ECB Starts QE, Cuts Rates).
The Fed also enacted two rate cuts this year. Recently, central banks in New Zealand, Australia, India, Peru, Mexico, Brazil, Thailand, South Korea, Indonesia and South Africa resorted to rate cuts in order to keep signs of a slowdown at bay. This could prove to be a boon for global real estate stocks, which thrive in a low-rate environment (read: Play Global Bond ETFs to Join Central Banks' Rate Cut Euphoria).
ETFs to Pick
SPDR DJ Wilshire International Real Estate ETF (RWX - Free Report) — Up 4.7% in the past month
The underlying Dow Jones Global ex-U.S. Select Real Estate Securities Index tracks the performance of publicly-traded real estate securities in countries other than the United States. Japan holds about 31.85% of the fund followed by Australia (10.4%) and United Kingdom (10.19%). It yields 4.64% annually.
WisdomTree Global ex-US Real Estate Fund — Up 4%
The underlying WisdomTree Global ex-U.S. Real Estate Index is designed to track the performance of companies from developed and emerging markets, outside the United States, which are classified as part of the Global Real Estate sector. It yields 6.27% annually. Hong Kong takes about 25.66% of the fund followed by Singapore (9.7%) and Australia (9.5%).
iShares International Developed Real Estate ETF (IFGL - Free Report) — Up 4.2%
The underlying FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index measures the stock performance of companies engaged in the ownership, disposure and development of the Canadian, European and Asian real estate markets. Again, Japan (26.7%), Hong Kong (13.4%) and the United Kingdom (10.5%) are the top geographies of the fund. The fund yields 4.78% annually.
iShares International Property ETF (WPS - Free Report) — Up 4.0%
The underlying S&P Developed ex-U.S. Property Index measures the investable universe of publicly-traded real estate companies in developed countries outside the United States. It yields 4.11% annually. Japan (31%), Hong Kong (12.6%) and Australia (10.5%) are the top three geographies of the fund.
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Global Real Estate ETFs Scaling Higher: Here's Why
The real estate corner of the broader market has been a key area of interest lately given the Fed and the ECB’s as well as many other central banks’ dovish stances that has kept the rates subdued globally and increased the appeal for the rate-sensitive stocks.
Additionally, the ebb and flow of U.S.-China trade war tensions, global growth issues and Brexit concerns are making global investors jittery, boosting demand for safe-haven assets like Treasury bonds, which lowers yields.
Flight to safety thus pushed the benchmark U.S. treasury yield to a 1.80% on Oct 21, down from the yearly-high of 2.79% recorded in January. In fact, some parts of the yield curve have inverted this year, sending out recessionary signals (read: 10-Year Yield Below One-Year: Play Leveraged Bond ETFs).
Since real-estate sectors perform better in a low-rate environment, these stocks have every reason to beat the broader market. Also, these stocks are high-yielding in nature, which gives investors another reason to flock to the space in this low-yield environment.
U.S.-based Vanguard Real Estate Index Fund ETF Shares (VNQ - Free Report) has gained 27.7% this year while SPDR S&P 500 ETF (SPY - Free Report) , which yields 1.84% annually, has added 20%.
On the international level, Vanguard Global ex-U.S. Real Estate Index Fund ETF Shares (VNQI - Free Report) , which yields 3.63% annually, has advanced 16.4%. In comparison, all-World ETF iShares MSCI ACWI ETF (ACWI - Free Report) , which yields 2.08% annually, has gained 16.9% in the year-to-date frame.
Global Rates to Remain Low
Dovish central banks in most developed nations have been helping the operating backdrop of the real estate market. Both Eurozone and Japan have been practicing record-low interest rate policies. In fact, in September, the ECB slashed its main deposit rate by 10 basis points to a negative 0.5% — a record low but on par with market expectations — and announced the launch of a quantitative easing (QE) program from Nov 1(read: ETFs to Gain & Lose as ECB Starts QE, Cuts Rates).
The Fed also enacted two rate cuts this year. Recently, central banks in New Zealand, Australia, India, Peru, Mexico, Brazil, Thailand, South Korea, Indonesia and South Africa resorted to rate cuts in order to keep signs of a slowdown at bay. This could prove to be a boon for global real estate stocks, which thrive in a low-rate environment (read: Play Global Bond ETFs to Join Central Banks' Rate Cut Euphoria).
ETFs to Pick
SPDR DJ Wilshire International Real Estate ETF (RWX - Free Report) — Up 4.7% in the past month
The underlying Dow Jones Global ex-U.S. Select Real Estate Securities Index tracks the performance of publicly-traded real estate securities in countries other than the United States. Japan holds about 31.85% of the fund followed by Australia (10.4%) and United Kingdom (10.19%). It yields 4.64% annually.
WisdomTree Global ex-US Real Estate Fund — Up 4%
The underlying WisdomTree Global ex-U.S. Real Estate Index is designed to track the performance of companies from developed and emerging markets, outside the United States, which are classified as part of the Global Real Estate sector. It yields 6.27% annually. Hong Kong takes about 25.66% of the fund followed by Singapore (9.7%) and Australia (9.5%).
iShares International Developed Real Estate ETF (IFGL - Free Report) — Up 4.2%
The underlying FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index measures the stock performance of companies engaged in the ownership, disposure and development of the Canadian, European and Asian real estate markets. Again, Japan (26.7%), Hong Kong (13.4%) and the United Kingdom (10.5%) are the top geographies of the fund. The fund yields 4.78% annually.
iShares International Property ETF (WPS - Free Report) — Up 4.0%
The underlying S&P Developed ex-U.S. Property Index measures the investable universe of publicly-traded real estate companies in developed countries outside the United States. It yields 4.11% annually. Japan (31%), Hong Kong (12.6%) and Australia (10.5%) are the top three geographies of the fund.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >