• ETF Insights

    Global Listed Real Estate Securities: An Opportunity Hidden in Plain Sight

    Meghana Pakala, ETF Product Analyst

    Generally speaking, investors aim to have a properly diversified portfolio, combining exposures to a number of different asset classes. Thanks to some interesting characteristics, global listed real estate—an often-overlooked asset class—is certainly deserving of a second look. REITs (Real Estate Investment Trusts) make up a significant part of the global listed real estate sector.

    There are a number of other important benefits associated with global listed real estate. Investors can benefit from price appreciation of the underlying assets, the income generated by these global real estate companies can be relatively high (averaging a yield of 4%), and there are several different subsectors within the real estate space such as retail, offices, industrial locations, healthcare, and specialties like self-storage and datacenters, just to name a few, which can provide an additional layer of diversification.

    As an asset class, real estate also has the potential to protect investors from inflation, as rental agreements—a foundation of the income provided by real estate investments—are typically adjusted for inflation. While some investors may fear that interest rate hikes could have a negative impact on real estate investment due to the leverage utilized in some of these businesses, contrary to popular belief, the majority of periods that coincide with upward trending interest rates have actually provided positive returns for global listed real estate investors.

    The chart below by GPR shows that US REITs delivered positive returns for investors during periods of rising interest.

    REIT Total Returns and Rate Changes: 1990 to 2019 (Q1)

    REIT Total Returns and Rate Changes: 1990 to 2019 Q1

    Source: Global Property Research. Interest Rates Changes of 10-yr US Treasury.

    Some investors may be hesitant to invest in global listed real estate due to a fear that such companies are not in the best shape to weather another financial crisis. However, much has changed since the 2009 financial crisis: the balance sheets of many listed real estate companies have significantly improved, which has substantially diminished their interest rate sensitivity. Moreover, many real estate companies have also extended the maturity on their debt, effectively locking in lower rates for the coming years and further diminishing interest rate sensitivity.

    But wouldn’t it be better for investors to directly invest in real estate, if they’re looking for real estate exposure? Not necessarily. At first blush, direct real estate investment may appear like a viable diversification strategy, however these investments are typically far less liquid than listed real estate investments.

    Investors have been catching on to the substantial benefits that global listed real estate and REITs can offer, which is perhaps why the asset class has seen such tremendous growth over recent years, as seen in the chart below:

    Historical Growth of the U.S. REIT Market

    Historical Growth of the U.S. REIT Market

    Source: Global Property Research.

    The VanEck Global Real Estate UCITS ETF allows investors to gain exposure to this important asset class. The fund seeks to track the Global Property Research 100 Index, which covers the largest and most liquid real estate securities worldwide. The ETF offers cost-effective, diversified, transparent, tax-efficient exposure to global listed real estate, with a current total expense ratio of just 0.25%.

    Global listed real estate securities, including ETFs, allow investors to benefit from potentially high dividend yields, long-term capital appreciation, and diversification. Contrary to popular belief, listed real estate equities have demonstrated substantial resilience, capable of performing well even in a rising interest rate environment. With all of these benefits, it’s only a matter of time before global listed real estate securities receive the attention and appreciation they deserve.

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