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REITs are attractive as diversifiers: they tend to have stock-like returns
and risk, but are relatively uncorrelated with other asset classes. For
more information about REITs, see here.
Foreign REITs offer additional diversification benefit.
There are several very similar investment options available. Which is
best?
All of the options discussed here will likely have very similar performance
and will get the job done quite well. You can't go far wrong choosing any
of the options listed here. The funds are listed in rough overall
order of preference.
Preferences are listed separately for use in
retirement accounts and for taxable accounts.
For a listing of our preferences in other asset classes, see
here.
Retirement Accounts (i.e., tax-deferred or tax-exempt accounts)
 | DFA International Real Estate Securities Portfolio (DFITX). E/R
0.56%. This fund "Invest[s] in a broad
portfolio of securities of non-U.S. companies in the real estate industry,
including developed and emerging markets, with a focus on non-U.S. real estate
investment trusts (REITs) or companies that the Advisor considers REIT-like
entities." The fund is passively managed and weights its
holdings roughly in proportion to each security's market capitalization.
Country weights are generally "based on the total market capitalization
of eligible
companies within each country."
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| iShares S&P World ex-U.S. Property Index Fund (WPS). E/R:
0.48%. This ETF tracks the S&P/Citigroup BMI World ex-U.S. Property
Index.
This is an index of REIT-like companies in developed markets
outside the United States. The fact that this fund is all foreign companies should
diversify an otherwise all-US portfolio. For more information on ETFs,
see here.
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| iShares FTSE EPRA/NAREIT Global Real Estate ex-U.S. Index Fund (IFGL).
E/R: 0.48%. This ETF tracks the FTSE EPRA/NAREIT Global Real Estate ex-U.S.
Index of companies engaged in the ownership, disposure, and development of the
Canadian, European, and Asian real estate markets. The fact that this fund is all foreign companies should
diversify an otherwise all-US portfolio. For more information on ETFs,
see here.
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| WisdomTree International Real Estate Fund (DRW). E/R:
0.58%. This ETF tracks the WisdomTree International Real Estate Index.
This is a dividend-weighted index of REIT-like companies in developed markets
outside North America. The fact that this fund is all foreign companies should
diversify an otherwise all-US portfolio. For more information on ETFs,
see here.
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| SPDR DJ Wilshire International Real Estate ETF (RWX). E/R:
0.60%. This ETF tracks the Dow Jones Wilshire Ex-US Real Estate
Securities Index, an equity index based upon the global (ex-US) real estate
market. The fact that this fund is all foreign companies should
diversify an otherwise all-US portfolio. For more information on ETFs,
see here.
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| First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund (FFR). E/R:
0.60%. This fund tracks the FTSE EPRA/NAREIT Global Real Estate Index
of real estate companies and REITS engaged in specific aspects of the North
American, European, and Asian real estate markets. The fact that this
fund is about 61% foreign companies should diversify an otherwise all-US
portfolio.
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| Northern Global Real Estate Index Fund (NGREX). E/R:
0.65% (actually, the expense ratio is 0.75% — it is
temporarily reduced to 0.65%, but that could change at any time without
notice). This fund tracks the FTSE EPRA/NAREIT Global Real Estate Index
of real estate companies and REITS engaged in specific aspects of the North
American, European, and Asian real estate markets. The fact that this
fund is about 75% foreign companies should diversify an otherwise all-US
portfolio. This fund has a redemption fee of 2% on shares sold within 30
days of purchasing. With its relatively high expense ratio, we see
little reason to use it instead of the above alternatives.
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U.S. REITs generally should not be held in taxable accounts. However,
this issue is a bit more complex for foreign holdings. If held in a
taxable account, you can recover the foreign tax withholding via the foreign tax
credit. But that would also subject the fund's dividends to relatively high income tax
rates. You can defer the income tax by putting it in a retirement account,
but then you permanently lose the foreign taxes. As a rule, we propose
that, if you assume that the foreign tax withholding is a blended rate of 15%, then
hold this fund in a taxable account if and only if the fund's dividend yield is
less than the ratio of [15% to [your marginal federal plus state income tax rate
for normal income]].
| DFA International Real Estate Securities Portfolio (DFITX). E/R
0.56%. This fund "Invest[s] in a broad
portfolio of securities of non-U.S. companies in the real estate industry,
including developed and emerging markets, with a focus on non-U.S. real estate
investment trusts (REITs) or companies that the Advisor considers REIT-like
entities." The fund is passively managed and weights its
holdings roughly in proportion to each security's market capitalization.
Country weights are generally "based on the total market capitalization
of eligible
companies within each country."
|
| iShares S&P World ex-U.S. Property Index Fund (WPS). E/R:
0.48%. This ETF tracks the S&P/Citigroup BMI World ex-U.S. Property
Index.
This is an index of REIT-like companies in developed markets
outside the United States. The fact that this fund is all foreign companies should
diversify an otherwise all-US portfolio. For more information on ETFs,
see here.
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| iShares FTSE EPRA/NAREIT Global Real Estate ex-U.S. Index Fund (IFGL).
E/R: 0.48%. This ETF tracks the FTSE EPRA/NAREIT Global Real Estate ex-U.S.
Index of companies engaged in the ownership, disposure, and development of the
Canadian, European, and Asian real estate markets. The fact that this fund is all foreign companies should
diversify an otherwise all-US portfolio. For more information on ETFs,
see here.
|
| WisdomTree International Real Estate Fund (DRW). E/R:
0.58%. This ETF tracks the WisdomTree International Real Estate Index.
This is a dividend-weighted index of REIT-like companies in developed markets
outside North America. The fact that this fund is all foreign companies should
diversify an otherwise all-US portfolio. For more information on ETFs,
see here.
|
| SPDR DJ Wilshire International Real Estate ETF (RWX). E/R:
0.60%. This ETF tracks the Dow Jones Wilshire Ex-US Real Estate
Securities Index, an equity index based upon the global (ex-US) real estate
market. The fact that this fund is all foreign companies should
diversify an otherwise all-US portfolio. For more information on ETFs,
see here.
|
| First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund (FFR). E/R:
0.60%. This fund tracks the FTSE EPRA/NAREIT Global Real Estate Index
of real estate companies and REITS engaged in specific aspects of the North
American, European, and Asian real estate markets. The fact that this
fund is about 61% foreign companies should diversify an otherwise all-US
portfolio.
|
| Northern Global Real Estate Index Fund (NGREX). E/R:
0.65% (actually, the expense ratio is 0.75% — it is
temporarily reduced to 0.65%, but that could change at any time without
notice). This fund tracks the FTSE EPRA/NAREIT Global Real Estate Index
of real estate companies and REITS engaged in specific aspects of the North
American, European, and Asian real estate markets. The fact that this
fund is about 75% foreign companies should diversify an otherwise all-US
portfolio. This fund has a redemption fee of 2% on shares sold within 30
days of purchasing. With its relatively high expense ratio, we see
little reason to use it instead of the above alternatives. |
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