ETF Expert

In the middle of basketball’s "March Madness," BusinessWeek published a 32-category bracket of investment possibilities. The investment with the most potential going forward? Global real estate investment trusts (REITs).

Some readers may have interpreted the "Wisdom of Brackets" as a tongue-and-cheek piece. Moreover, it may be a bit too early to declare that international REITs deserve the lion’s share of your money. Yet it’s not too early to examine the fast start for the SPDR DJ Wilshire Intl Real Estate Index Fund (RWX).

Specifically, U.S. real estate investment trusts (REITs) have yet to recover from the sub-prime bruising. The Dow Jones REIT Index Fund (RWR) has gained very little ground since U.S. lenders began tightening their belts and investors began questioning the sensibility of the U.S. REIT. In complete contrast, the SPDR DJ Wilshire Intl Real Estate Index Fund (RWX) has seen roughly 10% in 10 short weeks.

Granted, one might argue that most international investments have seen similar run-ups. Still, real estate investment trusts represent a unique structure abroad; indeed, they offer attractive yield payments to the international investor as well as a means for getting exposure to property appreciation and cash flow. Consequently, investors in the SPDR DJ Wilshire Intl Real Estate Index Fund (RWX) can benefit from the money moving into these trusts.

The worldwide boom in natural resources (e.g., water, wood, copper, aluminum, etc.,) and utilities (e.g., electricity, communications, etc.) has been attributed to an increasing need for property — both residential and commercial. It seems reasonable to expect that global REITs… and RWX… will prosper from this trend.

Like most things, however, the trend can change quickly. If the U.S. did find itself fighting off a recession, and if U.S. consumers did find themselves spending less and less on imported goods, there could be a negative impact on the global economy. Impressive yields from REITs abroad would not be enough to counter a pullback for RWX. In other words, it always makes sense to have a plan to sell, not just a good reason to buy.

Disclosure statement: Some of Pacific Park’s investment clients may hold positions in any of the investments mentioned above.