The recent spike in 10-year Treasury yields has sapped rate-sensitive, income-generating asset classes, including real estate investment trusts.
Year-to-date, the Vanguard REIT ETF (VNQ) , the largest REIT ETF, is down about 1%, but that does not mean all REIT ETFs are disappointing investors. An international approach to REITs is, no pun intended, paying dividends. For example, VNQ’s international equivalent, the Vanguard Global ex-U.S. Real Estate ETF (VNQI) , is up almost 11% this year. [Low Rates Lift Global REIT ETFs]
Confirming the strength of and the opportunity offered by international REIT ETFs, VNQI’s performance does not make it this year’s best international real estate ETF. That crown is currently worn by the Guggenheim Emerging Markets Real Estate ETF (EMRE) . EMRE, which debuted in September, is the first ETF dedicated solely to real estate assets in developing economies and is up almost 12% this year.
Clearly, EMRE has its advantages, one of the most obvious being a large weight to China. The ETF devotes almost 34% of its combined weight to Chinese and Hong Kong stocks, according to Guggenheim data. South Africa is EMRE’s third-largest country weight at 13.1%.
EMRE’s China exposure is important, particularly at a time when the Guggenheim China Real Estate ETF (TAO) , which tracks publicly traded companies and real estate investment trusts that derive the majority of their revenue from properties in China and Hong Kong, is up 20% year-to-date, a performance that dispels notions of a China real estate bubble.
EMRE’s and TAO’s bullishness contradict long-standing, widespread speculation that China’s housing and commercial real estate markets pose systemic risk to its goliath economy. Kaisa’s recent collapse has bolstered the bear case, but those headlines have not stopped the ETFs’ ascents. [So Much for the China Real Estate Bubble]
On Sunday, China’s central bank cut interest rates for the third time in six months. “With the latest interest rate cut, the effective mortgage rate on loans of more than five years has dropped to 5.37% from 5.61%,” according to MarketWatch.
EMRE, which charges 0.65% per year, tracks the AlphaShares Emerging Markets Real Estate Index. “The index is designed to measure and monitor the performance of the investable universe of publicly traded companies and real estate investment trusts that derive a majority of their revenues from real estate development, management and/or ownership of property in the countries of the S&P BMI Emerging Markets ,” according to a statement issued by Guggenheim. [First EM Real Estate ETF Debuts]
EMRE has a 30-day SEC yield of 2.07%.
Guggenheim Emerging Markets Real Estate ETF