ETF
How To Invest In Foreign REITs?
Outside of the U.S. the REIT industry is still in its infancy. For investors looking to diversify their portfolios REITs offer an opportunity to gain exposure to a different asset class. A simple and easy way to invest in foreign REITs is via ETFs.
Foreign-focused ETFs with their distribution yields as of May 27, 2010:
SPDR DJ International Real Estate ETF(RWX)
Distribution Yield: 3.97%
SPDR Dow Jones Global Real Estate ETF(RWO)
Distribution Yield: 3.60%
Cohen & Steers Global Realty Majors ETF(GRI)
Distribution Yield: 4.69%
iShares S&P Developed ex-US Property Index Fund(WPS)
Distribution Yield: 5.01%
iShares FTSE EPRA/NAREIT Asia Index Fun(IFAS)
Distribution Yield: 5.03%
WisdomTree International Real Estate Sector Fund(DRW)
Distribution Yield: 9.47%
Claymore/AlphaShares China Real Estate ETF(TAO)
Distribution Yield: 3.34%
iShares FTSE EPRA/NAREIT Europe Index Fund(IFEU)
Distribution Yield: 3.09%
Some of the emerging countries such as China and India have real estate bubles. However there many countries such as Brazil, Malaysia, etc. where the demand for housing is booming and prices are affordable. Hence investors can allocate a small portion of their assets to foreign REITs.
Disclosure: Long RWX
Equity Performance: Small Caps Easily Beat Large Caps
In my December 2009 article A Lost Decade for U.S. Stocks, I mentioned that the S&P 500 lost 23% from Dec 31, 1999 through Dec. 14, 2009.
A recent article in the Journal titled “Small Caps Loom Large” notes that the small cap stocks in the U.S. have rallied strongly since the decade that began Jan 1, 2000 when large caps have lost ground.
Some key points from the article:
- The S&P 600 Index, a small-stock index, gained nearly 100% during the period, producing an annualized return of 7.1%. In the same period, S&P 500 has lost almost 2% per year for a total loss of about 18%
- The Russell 2000, another small cap index also shows a similar pattern
- The S&P 600 is trading at 2010 P/E of less than 22 compared to S&P 500’s P/E of 15
- Small caps benefit more quickly when the economy recovers
Chart - Small Caps vs. Large Caps :
Click to Enlarge
U.S. Small Cap ETFs:
iShares S&P SmallCap 600 Index Fund (IJR)
iShares Russell 2000 Index Fund (IWM)
iShares Morningstar Small Core Index Fund (JKJ)
SPDR DJ Wilshire Small Cap ETF (DSC)
Vanguard Small-Cap ETF (VB)
Schwab U.S. Small-Cap ETF (SCHA)
International Small-Cap ETFs:
iShares MSCI EAFE Small-Cap Index Fund (SCZ)
International Small-Cap Fund (GWX)
FTSE Developed Ex-US Small Cap ETF (IFSM)
Vanguard FTSE All-World ex-U.S. Small Cap ETF (VSS)
SPDR S&P Emerging Markets Small Cap (EWX)
Source: Seeking Alpha, ETF Trends
As individual small cap stocks can be very volatile and may have low daily trading volumes, it is easier and wise to invest in them with ETFs.
The Top Eight Resource-Rich Countries
The following graph shows the eight richest countries by value of their natural resource reserves according to research by Citigroup. South Africa tops the list with its non-energy natural resource reserves valued at $2.5 Trillion. The developed countries in this ranking are the U.S., Canada and Australia.
Some of these markets have become expensive after the huge run up since the March lows of 2009. For example, the South African ALSI Index is up 55% since the lows reached last year. Accordingly the P/E ratio has jumped from 9x earnings at the start of 2009 to over 17x times earnings now. This is well above the long-term average of 11.5 times earnings.
The country-specific ETFs for the above countries are:
- iShares MSCI South Africa Index Fund (EZA)
- iShares MSCI Russia Capped Investable Market Index Fund (RTS)
- iShares MSCI Australia Index Fund (EWA)
- iShares MSCI Canada Index Fund (EWC)
- iShares MSCI Brazil Index Fund (EZA)
- iShares FTSE/Xinhua China 25 Index Fund (FXI)
- iShares MSCI Chile Investable Market Index Fund (ECH)
- iShares S&P 500 Index Fund (IVV)
Note: I have used the S&P 500 as the proxy for the boarder US market.
A Review of Canadian Dividend ETF
One of the ETFs that tracks the performance of top Canadian dividend stocks is The Claymore S&P/TSX Canadian Dividend ETF which trades on the Toronto Stock Exchange (TSX) with ticker CDZ. This ETF replicates the performance of S&P/TSX Canadian Dividend Aristocrats Index.
A company should satisfy the following criteria to become a member of the S&P/TSX Canadian Dividend Aristocrats Index:
- The company’s common stock or income trust must be listed on the Toronto Stock Exchange and must be a member of the S&P Canada Broad Market Index
- The company should have raised ordinary cash dividends every year for at least five consecutive years
- The float-adjusted market capitalization of the security is at least C$ 300M
The ETF has an asset base of $158M and the management fee is 0.60%. Distributions, if any, are done monthly. The fund has a heavy concentration in financials which accounts for about 46% of the portfolio. There are 70 companies in the portfolio with representation from the banking, energy, utility, materials, consumer discretionary and other sectors. The current yield is 5.49%. Note: All data is based on Canadian $.
To Download the constituents of the Claymore S&P/TSX Canadian Dividend ETF in Excel click here.
To download the latest FactSheet click here.
List of Country-Specific ETFs and CEFs
Some investors find it easy to invest in a country-focused fund rather than research and pick individual companies. This strategy works well since most of these funds hold the largest companies in a specific country and investing in them is relatively safer than say putting money in lesser known companies.
Many country-specific funds are available in the form of Exchange Traded Funds (ETFs) and Closed-Ended Funds (CEFs). Each have their own advantages and disadvantages. CEFs can be highly volatile during adverse market conditions. For example, to invest in Chile one can choose either the Chile ETF from iShares (ECH) or the Closed-Ended Fund, The Chile Fund (CH). ECH has $240M in assets while CH has $173M but the dividend yield for CH is 8.16%.
The table below lists the tickers of Exchange Traded Funds (ETFs) and Closed-Ended Funds (CEFs) by country:
| S.No. | Country | ETFs | Closed-Equity Fund (CEFs) |
|---|---|---|---|
| 1 | Canada | IEWC | |
| 2 | Australia | EWA | |
| 3 | UK | EWU | |
| 4 | Germany | EWG | |
| 5 | France | EWQ | |
| 6 | Austria | EWO | |
| 7 | Spain | EWP | SNF |
| 8 | The Netherlands | EWN | |
| 9 | Italy | EWI | |
| 10 | Belgium | EWK | |
| 11 | Ireland | IRL | |
| 12 | Singapore | EWS | |
| 13 | Malaysia | EWM | MAY |
| 14 | South Korea | EWY | KF,KEF |
| 15 | Japan | DXJ,ITF,EWJ,JPP,JSC | |
| 16 | Vietnam | VNM | |
| 17 | China | FXI,PGJ,GXC | CHN,GCH |
| 18 | Sweden | EWD | |
| 19 | Chile | ECH | CH |
| 20 | Brazil | EWZ | |
| 21 | Mexico | EWW | MXF,MXE |
| 22 | Thailand | TTF,TF | |
| 23 | India | IIF,IFN | |
| 24 | Russia | RSX | |
| 25 | Indonesia | IDX | IF |
| 26 | Israel | ISL | |
| 27 | Turkey | TKF | |
| 28 | Poland | PLND | |
| 29 | Taiwan | TWN | |
| 30 | Hong Kong | IEWH | |
| 31 | South Africa | EZA | |
| 32 | Switzerland | EWL | SWZ |
| 33 | Peru | EPU | |
| 34 | Colombia | GXG |
Please note that this list may not be complete as new ETFs are launched by providers. The data shown in the table is known to be accurate but do your own research before making any investment decisions.
10 Coal Stocks from the Russell Global Coal Index
Coal is still the major source of electricity generation in many countries including China, USA and others. China has plenty of coal and uses most of the coal mined for domestic power generation. In the US, coal is mined heavily from states like West Virginia and used in power plants.
One way to invest in coal stocks is to review the Russell Global Coal Index which measures the performance of all coal related stocks. There are 52 stocks from 17 countries in this index.
The ETFX Russell Global Coal Mining Fund ETF (KOAL.L) from ETF Securities tracks the Russell Global Coal Index. As of September, 2009 the Russell Global Coal Index is up 152% compared to 3.6% for the S&P 500.
The Top 10 Holdings from the ETFX Russell Global Coal Mining Fund are listed below:
1 China Shenhua Energy Co Ltd
China
2 Peabody Energy Corp. (BTU)
USA
3 Consol Energy Inc. (CNX)
USA
4 China Coal Energy Co
China
5 Bumi Resources Tbk PT
Indonesia
6 Alpha Natural Resources Inc. (ANR)
USA
7 Arch Coal Inc. (ACI)
USA
8 Walter Energy (WLT)
USA
9 Yanzhou Coal Mining Co Ltd
China
10 Massey Energy Co. (MEE)
USA
