A report issued last year called the “Historical Returns of the Market Portfolio,” looked at the performance of worldwide financial assets for the modern era, from 1960 to 2015. The researchers Laurens Swinkels of Erasmus University, Rotterdam, Trevin Lam of Rabobank, and Ronald Doeswijk, found that during the observed time frame global stocks returned 5.45% a year, non-government bonds returned 3.5% a year, and government bonds returned 3.06% a year. But, shockingly the best assets class from 1960 until 2015 was actually real-estate investment companies and trusts, which produced a yearly return of 6.43%.
The difference of a Real-Estate Investment Trust portfolio and a global equity portfolio for a period of 20 years would mean the REIT portfolio would have beaten the global stock portfolio by nearly 30%. Furthermore, the REITs performed very well when looked at on a per decade basis. The 1990s was the only decade in which REITs didn’t perform, as returns were just above zero. But that decade following the 1980s when things were booming. This all while stocks performed poorly in the 1970s, which just barely producing positive returns, and from 2000 until 2010 when global stock returns were actually negative.
In addition to performing better than stocks on a per-decade basis, real-estate’s worst year was never as bad as stocks worst year but its best year was better than global stocks best year. More so, it had fewer years in which it fell more than 10% than the number of years in which stocks fell 10% or more.
Now there are a few things which this study looked at that are important to remember; first, the study looked at global stocks and real-estate, not just the US. Second, the study looked at only publicly listed commercial real-estate, so no private residential real-estate such as your home. And third, these results where of the “past,” which may give insight to where things will go in the future, but there is no guarantee of what may happen. (I will say though, history does tend to repeat itself.)
But, if you are like me and think it may be worth adding a little global real-estate to your portfolio after reading this research report, allow me to share a few of the options I am currently considering for myself.
The first is of my four current options, and in no particular order, is the iShares Global REIT ETF (REET). This ETF has an expense ratio of 0.14%, with a dividend yield of 5.45%. The fund currently owns 291 companies with an average weighted market capitalization of $12.74 billion and total assets under management of $1.29 billion. The fund tracks a global, market-cap-weighted index of firms involved in the ownership and operation of real estate, but slightly favors US-based companies as about half of its holdings are domestic firms. I like REET’s large number of holdings, low fee, and a healthy dividend.
The next is the Cohen & Steers Global Realty Majors ETF (GRI) which again tracks a market-cap-weighted index of global real estate companies. It does slightly overweight the US and commercial real estate and largely ignores small and micro-caps, which isn’t the worst thing in the world. GRI also has a concentrated portfolio of just 75 stocks. It has a yield of 4.22% and an expense ratio of 0.55%. The weighted average market cap of GRI is $22.34 billion and an average price to earnings ratio of 15.01. GRI is a good fund if you're looking for a more concentrated portfolio and little too no exposure to smaller companies.
Then we have the SPDR Dow Jones Global Real Estate ETF (RWO) invests across the market cap spectrum and while it calls itself a ‘Global’ ETF, it is overweight the US and light Asia. Furthermore, it focuses more on commercial REIT’s, while not having much exposure to real-estate developers. RWO has over 200 holdings, with a weighted average market cap of $14.21 billion. The fund also has $2.23 billion in assets under management, pays a 3.79% dividend yield and charges a 0.5% expense ratio. RWO is a good investment if you want wide exposure across all market caps and is REET’s only true competitor.
And finally, the Global X SuperDividend REIT ETF (SRET) actually tracks an equal-weighted index of global REIT’s, but just chooses 30 holdings at any given time based on high-yield and low-volatility. The fund screens for the 60 highest dividend paying REIT’s and then picks the top 30 with the lowest volatility. This method may not be the most scientific, but over the past year, SRET is the only REIT ETF on this list that is in the black, up 1.24%, not including its dividend. With that in mind, the fund charges a 0.58% expense ratio but offers an 8.90% yield. The weighted average market cap of its holdings is just $4.65 billion with a price to earnings of just 10.71. Currently, the fund has $124 million in assets under management. Clearly, SRET is the good option for you if your looking for a high dividend paying ETF, but know this fund certainly comes with high turnover and its unlikely to ever knock the cover off the ball. Certainly, a slow and steady ETF, which could get really hurt if any of its holdings get into financial difficulty and cut their dividend.
At the end of the day, the list of four REIT ETFs mentioned above is just four of more than 50 possible ETFs you could choose from. Each has its pro’s and con’s, and what may be important to me, may not be to you. Do your research and always make sure you fully understand what you are buying before jumping in.
Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
