Updated

Updated · The Motley Fool · Jun 20

State Street's RWO Tops XLRE by 4.7 Points as 0.08% Fee Trades Off With Global Reach

Updated

Updated · The Motley Fool · Jun 20

State Street's RWO Tops XLRE by 4.7 Points as 0.08% Fee Trades Off With Global Reach

Q: Is a 'global' real estate fund truly diverse when over 70% of its assets are still in the U.S.?

Not really. A fund can be “global” in the technical sense that it owns securities from many countries, but if more than 70% of assets remain in the U.S., its performance and risk are still dominated by the U.S. real estate market. That is the case with State Street’s RWO. It holds property stocks across about 20 countries, but roughly 72.7% is in the United States, with much smaller weights in Japan, the U.K. and Singapore. That gives investors some international exposure, including currency and regional market differences, but not the kind of balanced geographic diversification many people expect from the word “global.” The practical issue is concentration. A portfolio that is heavily tilted to one country is still highly exposed to that country’s interest-rate path, economic cycle, property valuations and sector mix. In RWO’s case, several of its biggest holdings are also major U.S. names found in XLRE, such as Welltower, Prologis and Equinix. So for an investor who already owns U.S. equities or U.S. REITs, RWO may add less diversification than its label suggests. That does not make RWO misleading or useless. It offers broader reach than XLRE, access to non-U.S. REIT markets, and a slightly higher yield. But investors seeking true international diversification should recognize that RWO is better described as a U.S.-heavy global real estate fund, not a globally balanced one. For purer overseas exposure, an ex-U.S. real estate fund would be the more precise tool.

3 articles · Updated · The Motley Fool · Jun 20

RWO returned 15.8% over the past year versus XLRE's 11.1%, giving investors stronger recent performance in exchange for a much higher 0.5% expense ratio versus 0.08%.
That trade-off reflects strategy: XLRE holds 31 mostly U.S. real estate names tied to the S&P 500, while RWO owns about 220 stocks across U.S., developed and emerging markets.
Over five years, XLRE turned $1,000 into $1,177 against RWO's $1,118, while both posted similar max drawdowns of about 33% to 34%.
Income is also close, with RWO yielding about 3.2% to 3.3% versus XLRE's 3.1%, even though both share top holdings including Welltower, Prologis and Equinix.
The comparison leaves investors choosing between cheaper, concentrated U.S. exposure in XLRE and broader global diversification in RWO, along with added currency and regional property-market risk.