Diversify with Real Estate

Investors seeking to diversify a US-centric portfolio should take a hard look at real estate.

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In a recently completed study, researchers found that the correlation of property securities across borders was much lower than for equities or bonds.

The averagage correlation of national returns with global ex-local returns for property securities was 0.25 in the period December 1995 to September 2008.

The same measure over the same time period was 0.64 for equities and 0.56 for bonds.

The lower correlation for real estate across borders is due to the fact that property market cycles are very much dependent on local supply and demand.

Equities and bonds tend to be more fungible with values driven by global supply and demand factors.

The study was published by European Investors, citing Thomson Datastream and Schroders as data sources.

International real estate ETFs include the SPDR DJ Wilshire International Real Estate ETF (RWX) and WisdomTree International Real Estate Fund (DRW).

Both funds maintain well diversified portfolios across various types of real estate investments and geographies.

For a complete listing, see the  Real Estate ETF Directory.