Play Foreign Real Estate With ETFs
Too Far, Too Fast?So should this segment even be in your portfolio? Has it come too far, too fast to invest in now? Both DRW and RWX -- and I'll give the benefit of the doubt to AWP once it has some track record -- have relative correlations to the S&P 500 at 0.622 and 0.629, respectively, and both yield more than the S&P 500.
According to WisdomTree's back-test, the index underlying RWX has outperformed the index underlying DRW for one-, three- and five-year periods, but DRW's index has outperformed on a 10-year basis. Both funds have blown away the returns of the S&P 500 for all of the above periods. Because AWP is an actively managed product, there is no back-test.
After several years of returns of more than 30% per year, the international real estate segment is far from without risk. There are concerns about whether the property markets in the funds' largest-weighted countries -- such as the U.K., Hong Kong and Australia mentioned above -- are in their own bubbles. As for my own personal bias about Japan, years of wildly stimulative policy have not wildly stimulated the economy.
On the basis of what can be gleaned about all three funds now, buying AWP really boils down to a leap of faith in the manager. This is probably not a bad idea, because just about every Alpine product I have ever looked at has done very well.Between RWX and DRW, I have to wonder whether the dividend weighting is the better mousetrap here. I might give the nod to RWX, given its slight outperformance as mentioned above and what I feel is better country diversification. While I am a big fan of dividend weighting, it is not intuitive that it's the best strategy for every single part of the market. A possible strategy to incorporate one of these funds into a diversified portfolio might be to decide to allocate 2% or 3% to foreign real estate; I tend to be conservative with these types of themes. Within that weighting, allocate three-quarters to one of the funds and the other one-quarter into an individual stock from an under-represented country that you believe has a strong economy. Some examples for me would be Norway, Finland, Canada or Brazil. Obviously this won't be practical for accounts below a certain size, but I think strategically it makes sense for some folks.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV