WisdomTree: Real Estate as an Income-Generating Asset Class

Managing Valuation Risk with a Rebalance Back to Fundamentals

Some might look at the nearly 30% return within WTGRE’s Australia exposure or 46% return within its exposure to Thailand and think, what if these markets are becoming overvalued? This could be particularly true in an environment where the broad MSCI ACWI ex-U.S. Index is up a mere 5.1% over the same period. Of the 10 exposures within WTGRE, Japan’s is the only one underperforming this figure.² Fortunately, on September 30, 2014, WTGRE will undergo its annual screening, which helps to avoid valuation risk concerns.

• Constituents that have seen significant increases in share price performance but whose dividends have not commensurately grown could see decreases in weight.

• Constituents that have seen significant increases in their dividends but have not seen similar increases in their share prices may see increases in weight.

Thinking of this at the country aggregate level means that countries that maintain significant exposure after positive performance are delivering not only share-price performance but also dividend growth.

One Option in the Search for Income-Generating Solutions

In the current interest rate environment, a big theme that we often write about regards thinking of dividend-paying equities as potential income solutions. Focusing on the real estate sector—accomplished here with WTGRE—could be an even more precisely tuned income focus within the current equity landscape outside of the United States.

¹Source for paragraph: Bloomberg, with 10- year sovereign debt used for the interest rates of each market. Data from 7/31/14 to 8/31/14.
²Source for paragraph: Bloomberg, with data from 12/31/13 to 8/31/14.