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The Federal Reserve Chair, Janet Yellen’s recent indication of a possible rate hike has possibly made investors putting their capital on real estate sector or real estate investment trust (REIT) in the U.S. jittery. This is because a rise in interest rates leads to a high borrowing cost for the REITs on which they are highly dependent. Moreover, high-dividend yielding stocks like REITs usually become less attractive when treasury yields rise amid rising interest rate. It is for this reason investors should definitely take a look at the SPDR MSCI International Real Estate Currency Hedged ETF (NYSEARCA: HREX ) , which focuses on the ex-U.S. REIT stocks. The fund is launched by State Street Global Advisors. HREX in Details HREX tracks the performance of the MSCI World ex USA IMI Core Real Estate Capped 100% Hedged to USD Index, which is a free float-adjusted market capitalization-weighted index, aimed to measure the performance of stocks in the MSCI World ex USA IMI Index. In order to be a part of the index, a company needs to generate at least 75% of its revenues from real estate activities related to core property types, including industrial, office, retail, residential, health care, hotel and resort, data centers, and storage. Since the fund’s investment is denominated in foreign currencies, it is susceptible to fluctuations in exchange rates between such currencies and the U.S. dollar. However, the Index applies a hedging methodology against such fluctuations by employing a one-month forward rate against the total value of the non-U.S. denominated securities in the Index. The fund replicates this hedging technique by entering into foreign currency forward contracts. The ETF comprises 261 stocks with top holdings including Unibail-Rodamco SE ( OTCPK:UNRDY ) (4.77%), Sun Hung Kai Properties Limited ( OTCPK:SUHJY ) (4.64%) and Mitsubishi Estate Company Limited ( OTCPK:MITEY ) (3.01%). The top 10 holdings constitute around 31% of the fund. Considering country-wise allocation, Japan, U.K. and Hong Kong occupy the top three positions with shares of 19.50%, 14.85% and 14.79%, respectively. The fund charges 48 bps in fees from investors per year (see all Real Estate ETFs here). How Does it Fit in a Portfolio? REITs are required to distribute at least 90% of its annual taxable income to shareholders annually in the form of dividends. Since the fund invests in ex-U.S. real estate sector, it definitely shields the investors enjoying the high dividend yield from the dangers of an impending rate hike in the U.S. Further, strengthening of dollar against most of the major currencies is attracting investments in the non-U.S. real estate sector, particularly hotels, office buildings and retail complexes. In addition, along with ongoing urbanization and fast-growing middle class in the emerging economies, easing of restrictions on foreign direct investments is leading to increased flow of international capital into REITs in these economies. In the first half of 2015, foreign investment turnover in Asia-Pacific escalated 9% year-on-year to $13 billion . All this bode well for the fund as investors can tap the booming real estate sector in the non-U.S. countries by investing in it (read: A Comprehensive Guide to REIT ETFs ). ETF Competition HREX definitely earns a point over most of the ex-U.S. real estate ETFs because it is currency hedged. Still, there are a number of such ETFs that worth to mention. A couple of top global real estate ETF includes the SPDR Dow Jones International Real Estate ETF (NYSEARCA: RWX ) and the Vanguard Global ex-U.S. Real Estate ETF (NASDAQ: VNQI ) . RWX tracks the Dow Jones Global ex-U.S. Real Estate Securities Index and focuses on publicly traded real estate securities in developed and emerging countries excluding the U.S. It has an asset base of $4.7 billion and focuses heavily on Japan, U.K. and Australia. On the other hand, VNQI tracks the S&P Global ex-U.S. Property Index and focuses on REITs in emerging markets and developed markets outside the U.S. It has amassed nearly $3 billion in assets and gives high preference to Asia Pacific countries. However, VNQI looks attractive than RWX on both the cost and yield fronts. RWX charges 59 bps in fees and has a dividend yield of 3.24% while VNQI charges 24 bps in fees and has a robust dividend yield of 4.45%. Link to the original article on Zacks.com Scalper1 News
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