The best way to gain exposure to emerging market real estate investment trusts (REITs) is via exchange-traded funds (ETFs) based in the United States. However, investing in emerging market REITs (with significant exposure to Asia) should only represent approximately 10%-20% of your real estate exposure due to higher risk than what you will find in the United States. (For more, see: Introduction to International REITs.)

The REIT market as a whole has been performing well. In the first half of 2014, investors sought yield, and REITs fit the bill. The third quarter of 2014 didn’t bode well for REITs because investors feared the Federal Reserve was planning to hike interest rates. However, the demand for yield returned when the fourth quarter saw uncertainty, largely in part to a significant decline in the price of oil. This decline in the price of oil removed the fear or an interest hike. It also indicated decreased demand and a potential slowdown in the global economy. This is something to keep in mind when investing in emerging market REITs. It’s difficult to find a market that’s likely to continue emerging on a sustainable basis in the coming years. That said, with the 10-Year Treasury note at just under 2% (as of 3/26/15) and the average yield on a REIT at around 3.70%, REITs look appealing. (For related reading, see: Invest in REITs with this ETF.)

Below are four emerging market REIT ETFs to consider adding to your portfolio.

SPDR Dow Jones International RelEst ETF (RWX)

IPO Date: Dec. 15, 2006 (down 27% since IPO)

Purpose: Tracks the performance of the Dow Jones Global ex-U.S. Select Real Estate Index.

Total Assets: $5.19 billion (as of 3/26/15)

Yield: 3.21%

Average Volume: 527,340

Expenses: 0.59%

Vanguard Global ex-US Real Estate ETF (VNQI)

IPO Date: Nov. 1, 2010 (up 8.6% since IPO)

Purpose: Tracks the performance of the S&P Global ex-U.S. Property Index.

Net Assets: $2.68 billion

Yield: 3.87%

Average Volume: 233,764

Expenses: 0.24%

iShares International Dev Rel Est (IFGL)

IPO Date: Nov. 12, 2007 (down 31.65% since IPO)

Purpose: Tracks the performance of the FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index.

Total Assets: $984.11 million

Yield: 3.35%

Average Volume: 161,311

Expenses: 0.48%

WisdomTree Global ex-US Real Estate ETF (DRW)

IPO Date: June 5, 2007 (down 40.40% since IPO)

Purpose: Tracks the performance of Wisdom Tree Global ex-U.S. Real Estate Index.

Total Assets: $123.15 million

Yield: 4.95%

Average Volume: 24,645

Expenses: 0.58%

Performance Comparison

If you take a quick look at the performance-since-IPO numbers above, then you’re likely going to eliminate RWX, IFGL, and DRW from your list. However, if you take a closer look, you will notice that RWX came into existence at the worst possible time, which was at the peak of the real estate boom. IFGL and DRW followed soon after. If we eliminate that factor and look at performance comparisons over one-year and three-year time frames, then you see a much different picture:

1-Year

3-Year

RWX

12.60%

11.98%

VNQI

11.36%

11.24%

IFGL

10.71%

10.75%

DRW

15.45%

10.55%

In large part, they trade together. Therefore, consider dividend yields and expense ratios if you plan on initiating a position.

The Bottom Line

It’s highly recommended that you approach emerging market REIT ETFs as a speculative play. By doing so, you’re not allocating a lot of capital to a high-risk investment. If you’re incorrect, your portfolio should be able to withstand the hit. If you’re correct, a position like this has the potential to lead to substantial rewards. Please do your own research prior to making any investment decisions. (For more, see: Top ETFs and What They Track: REIT ETFs.)

Dan Moskowitz does not have any positions in any of the ETFs mentioned in this article.

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