Foreign Real Estate
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 similar-seeming investment options available. Which is best?
The funds are listed in rough order of our overall 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)
- Vanguard Global ex-U.S. Real Estate Fund Admiral Shares (VGRLX). E/R 0.12%. This fund tracks the S&P Global ex-U.S. Property Index of international real estate stocks in both developed and emerging markets
- DFA International Real Estate Securities Portfolio (DFITX). E/R 0.27%. 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."
- Vanguard Global ex-U.S. Real Estate ETF (VNQI). E/R 0.12%. This fund tracks the S&P Global ex-U.S. Property Index of international real estate stocks in both developed and emerging markets.
- Xtrackers International Real Estate ETF (HAUZ). E/R: 0.10%. This ETF tracks the iSTOXX Developed and Emerging Markets ex USA PK VN Real Estate Index. This is an index of REIT-like companies in developed markets outside the US.
- iShares S&P World ex-U.S. Property Index Fund (WPS). E/R: 0.48%. This ETF tracks the S&P 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.
- 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.
- SPDR DJ Wilshire International Real Estate ETF (RWX). E/R: 0.59%. This ETF tracks the Dow Jones Global ex-U.S. Select 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.
Taxable Accounts
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. It isn't clear to us the best way to use these (i.e., in a taxable account or in a retirement account).
- Vanguard Global ex-U.S. Real Estate Fund Admiral Shares (VGRLX). E/R 0.12%. This fund tracks the S&P Global ex-U.S. Property Index of international real estate stocks in both developed and emerging markets. We expect the fact that there exists an ETF shares class of this fund will make it more tax efficient than it would otherwise be.
- Vanguard Global ex-U.S. Real Estate ETF (VNQI). E/R 0.12%. This fund tracks the S&P Global ex-U.S. Property Index of international real estate stocks in both developed and emerging markets.
- Xtrackers International Real Estate ETF (HAUZ). E/R: 0.10%. This ETF tracks the iSTOXX Developed and Emerging Markets ex USA PK VN Real Estate Index. This is an index of REIT-like companies in developed markets outside the US.
- iShares S&P World ex-U.S. Property Index Fund (WPS). E/R: 0.48%. This ETF tracks the S&P BMI World ex-U.S. Property Index. This is an index of REIT-like companies in developed markets outside the United States.
- 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.
- SPDR DJ Wilshire International Real Estate ETF (RWX). E/R: 0.59%. This ETF tracks the Dow Jones Global ex-U.S. Select Real Estate Securities Index, an equity index based upon the global (ex-US) real estate market.
This web page contains the current opinions of Eric E. Haas at the time it is written—and such opinions are subject to change without notice. This web page is intended to serve two purposes:
- To educate the public; and
- To provide disclosure of Mr. Haas' opinions to prospective clients. We believe that prospective clients are well-served by being made aware of what they are buying—and what they are buying is advice that is based on these opinions.
We believe the information provided here to be useful and accurate at the time it is written. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed.
No investor should invest solely on the basis of information listed here. Before investing, it is important to consult each prospective investment's prospectus and consider both its risk/return characteristics and its effect on your overall portfolio.
This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, PruFid recommends consultation with a qualified tax adviser, CPA, financial planner, or investment adviser. If you would like to discuss the rationale or support for any particular idea expressed on this web page, feel free to contact us.