Quick question: What was the top-performing asset class of 2012? If you’re thinking emerging markets or domestic micro-cap stocks, you’d be wrong. In fact, the best-performing asset class in 2012, by a wide margin, was an area of the market that many investors don’t even have exposure to — global real estate. The Dow Jones Global ex-U.S. REIT index was up a whopping 34.3% last year. And while you shouldn’t expect a repeat performance in 2013, you may want to consider adding exposure here if you don’t already have it.
A global focus
While institutional investors have been investing in alternative asset classes for quite some time now, Main Street investors have begun jumping on the alternative bandwagon only recently. Commodities, real estate, and other “real return” assets have gradually found their way into more and more retail portfolios. And while real estate investment trusts, or REITs, are a popular choice for folks seeking commercial real estate exposure, most investors tend to focus on domestic investments.
There are a number of solid domestically focused real estate ETFs. The Vanguard Global Equity Inv (MUTF:VHGEX), for instance, comes with a super-low 0.10% price tag. Investors who prefer active management or who want to supplement their existing passively invested real estate allocation would do well with a stable, low-risk fund like T. Rowe Price Real Estate (MUTF:TRREX). But if you want to expand your reach overseas, there are also some great options that focus on that space.
Exchange-traded funds remain one of the cheapest and easiest ways to get broad exposure to practically any segment of the market, including global real estate. Some of the most inexpensive options in this sector include Vanguard Global ex-U.S. Real Estate ETF if you want true international coverage and SPDR Dow Jones Global Real Estate ETF for global exposure that includes a 54% allocation to the U.S. The Vanguard fund will cost you just 0.35% while the SPDR comes with a 0.50% annual expense ratio. Either is a great choice for low-cost foreign real estate exposure.
Actively managed funds
Investors who want a bit more active guidance when roaming the world for real estate opportunities should consider putting their trust in a money manager with considerable experience in this sector. One great choice is T. Rowe Price Global Real Estate (TRGRX). Although the fund has only been around since 2008, it is headed up by manager David Lee, who has managed the domestically focused T. Rowe Price Real Estate fund since its inception in 1997. Lee follows the same sensible, risk-managed approach in both funds, looking for well-managed real estate companies that are selling at reasonable valuations. U.S. names are featured in the fund, including top holding Simon Property Group, Inc (NYSE:SPG) , which Lee favors for its portfolio of high-productivity malls and its strong negotiating power with tenants. T. Rowe Price Global Real Estate has a lower risk profile than many similar funds, so this is a good place to start if you’re new to the global real estate scene.