There’s always talk of the next big crash. Whether it’s America’s debt or the stock market ‘bubble’, some are always chiming in that economic collapse is imminent.
I’m more neutral in this regard. While I’m enjoying the bull market in the U.S., I am also skeptical about long-term growth. However, I do not foresee a ‘collapse’ or anything close to it in the near future.
That said, diversification is always a smart option. Why invest in just one country when you could invest in dozens if not over a hundred? It makes little sense not to. Moreover, the potential for growth in emerging and frontier markets is much greater than the U.S. economy which is inching along at 2% GDP growth.
While going abroad and buying ‘hard assets’ like real estate and farmland in foreign countries is a smart move, not all of us have that luxury. Moreover, some would rather just make a few clicks on their computer and get exposure to foreign real estate markets instead of trekking around developing cities.
Best REIT’s to Get Exposure to International Real Estate
I’m fascinated by real estate crowdfunding websites. They give investors the opportunity to put in small amounts of funds into real estate projects with opportunities for big gains. I do have some skepticism though in terms of the companies’ liquidity, but the idea is still solid. What I would absolutely love is for real estate crowdfunding outside the U.S. There are no such opportunities I am aware of at the moment, so for now I stick to REIT’s (Real Estate Investment Trusts).
A REIT is a company that either owns or finances real estate, which can include commercial and/or residential holdings. For REIT ETF’s, the ETF’s have holdings in different REIT’s, which gives you exposure to numerous entities.
Here are 3 solid choices for getting started with international REIT’s.
Vanguard Global ex-U.S. Real Estate ETF (VNQI)
Vanguard is my go to company for investing. They have low expense-ratios and a solid track record of performance.
This Vanguard fund has closely follows the S&P’s index for property outside the U.S. which represnts more than 30 countries. VNQI’s portfolio is skewed towards the Pacific, with a the largest percent of holdings in Japan–this is my big gripe with this fund. I don’t see much potential for growth in Japan long-term, which bogs down the growth of this fund. Fortunately, the fund does have holdings with exposure to Hong Kong, Australia and China all of which will provide better growth than Japan.
VNQI is a solid global REIT, and with it’s low expense ratio of just 0.15% it makes it even more appealing. It will not provide astounding returns, but you can expect consistent growth and eschew exposure to another U.S. real estate crash.
SPDR Dow Jones International Real Estate ETF (RWX)
The Dow Jones real estate has a similar portfolio to Vanguard’s, with approximately 25% of the fund weighted towards Japan. To my chagrin, about 12% of funds are weighted towards the U.S., and while not a huge number, is more than I’d want for a REIT geared towards international growth.
It has a big chunk of holdings in Australia and France, so if you’re bullish about those countries than RWX may be a good choice. Still, the fund is a bit top-heavy.
I will say that the fund has a juicy and tempting 8.6% yield which is hard to turn down. If you’re looking for that ‘guaranteed’ return this is a good bet.
iShares International Developed Real Estate ETF (IFGL)
This fund from iShares is quite similar to VNQI. However, the holdings are even more concentrated in terms of geography, with Japan holding almost a quarter of the assets! Rounding out the top four are Hong Kong (17%), Australia (13%), and the U.K. (10%).
If you’re willing to accept the higher concentration of assets, then the 7.6% yield will make it even more enticing.
You CAN Do What a REIT CAN’T!
Unfortunately, none of these REIT’s hold assets in frontier markets, let alone substantial holdings in emerging markets. Having diversification among developed countries is great, but for high-yields none of these REIT’s can offer that. I am talking nearly 20% yields in places like Southeast Asia and Eastern Europe.
Moreover, with companies like AirBnb, you can make tons of cash by renting your places to westerners visiting developing nations. However, this requires you to do the work.
If you want to do the best gains, you’re going to have to do it yourself.
(Disclosure: This is not professional legal or financial advice. Seek a certified financial adviser before engaging in trading securities).