On the back of declining Treasury yields, exchange traded funds holding real estate investment trusts (REITs) have rebounded this year.
After lagging the broader market in a big way last year, the Vanguard REIT ETF (NYSEArca: VNQ), iShares U.S. Real Estate ETF (NYSEArca: IYR) and other U.S.-focused REIT ETFs are already sporting gains that are better than double, triple and, in some cases, quadruple their runs from last year. [REIT ETFs Rally as Rates Fall]
The globally biased SPDR Dow Jones Global Real Estate ETF (NYSEArca: RWO) merits a place in the REIT ETF conversation as well, though investors should note an allocation to RWO does not mean sacrificing further upside in U.S. REITs if Treasury yields continue to decline. The U.S. is RWO’s largest country weight at almost 54% of the $1 billion ETF’s weight.
Overall, RWO offers exposure to 19 countries, a group that includes scant emerging markets exposure. If there is a cautionary tale to be told with RWO, it is that Hong Kong and Singapore combine for 8% of the ETF’s weight. That may not be enough to truly chart the RWO’s course, and yes, those are AAA-rated markets. However, Hong Kong and Singapore are also two of the world’s most expensive real estate markets, stoking speculation that both are vulnerable to potential property bubbles. [A Bearish Call on the Hong Kong ETF]
The exposure to Hong Kong and Singapore is tempered by RWO’s better than 15% combined weight to developed Europe. That gives the ETF leverage to recovering equity markets across the Atlantic, an advantage for the fund at a time when European equities are still cheaper than U.S. equivalents and not as deeply advanced in recovery in the eyes of some market observers. [A Different Way to Play Germany]