If there's a more beleaguered and battered segment of investing than real estate, I haven't seen it. The iShares Dow Jones US Real Estate Fund (IYR) is down -14% in 2009 after 6 short months; it dropped approx -40% in 2008 and nearly -20% in 2007.
At the moment, IYR is roughly 65% off its 2007 peak. More importantly, however, the price of iShares Dow Jones US Real Estate Fund (IYR) has not convincingly held above its long-term (200-day) moving average since April, 2007. An investor may be wise to wait for a genuine break-out above the trendline before allocating to domestic REITs.
So if market-based real estate investing is troubled beyond consideration, why focus any attention on the area? Perhaps it's because there are a number of real estate funds outside of the U.S. that are showing exceptional promise.
First and foremost, Claymore AlphaShares China Real Estate (TAO) is not only a promising exception, it is one of the best performing ETFs for the 1st half of 2009. TAO tracks 40 companies that derive the majority of revenue from real estate development and/or management in China.
It's true that TAO is not the bargain it was 3 months ago. At that time, investors had a price-to-book of 1. After doubling in value, you may be a bit gun-shy. Nevertheless, as long as China figures to spend 75% of its stimulus on infrastructure… and as long as an emerging Chinese middle class shows more interest in home-ownership… the Claymore AlphaShares China Real Estate (TAO) is a momentum/growth ticket you may wish to purchase.
Of course, one of the biggest reasons that an investor chooses REITs has been a historically low correlation to other assets as well as a robust history of high dividend payouts.
The iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (IFGL) tracks an index that is measuring the stock performance of investment trusts and property developers in developed Europe, Asia and Australia. Even with a 20% weighting in recession-ravaged Japan and 10% in the horrendous housing market of England, this ETF has hopped 66% off of its March lows.
Whereas most REIT ETFs and real estate funds are still struggling with double-digit year-to-date losses, IFGL is up 17% in 2009. Moreover, it's handily above 50-day and 200-day moving averages.
In 2008, iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (IFGL) doled out roughly 6% in distributions. It has offered zero so far in 2009… and that's not what REIT investors typically expect in a quarterly income stream.
Indeed, with 1.5x greater volatility than the S&P 500, IFGL seems a dubious pick. That said, there is definitive movement to the upside in developed foreign market real estate.
Need another example? Check out SPDR Dow Jones International Real Estate (RWX). This is yet another foreign REIT ETF with a 65%+ jump off of the March lows. And like the previously mentioned fund, RWX is above its 50-day and 200-day trendlines as well.
Unlike IFGL, however, SPDR Dow Jones International Real Estate (RWX) has been paying a quarterly dividend that approximates 5.7% annualized income. The price-to-book at the State Street SPDR web site for 6/26/2009 is claiming 0.78. That would suggest RWX still has quite a ways to run.
If you'd like to learn more about ETF investing… then tune into "In the Money With Gary Gordon." You can listen to the show "LIVE", via podcast or on your iPod.
Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.