DRW : WisdomTree's new ETF on Foreign Real Estate

In mid-December, the State Street Global Advisors (State Street), the investment management arm of State Street Corporation launched the SPDR Dow Jones Wilshire International Real Estate Fund (RWX) on the American Stock Exchange. The ETF was billed to be the first such offering designed to track overseas listed real-estate stocks and is the first ETF to monitor performance of publicly traded global real estate securities outside of the U.S.

Since its launching at the end of last year, the fund has attracted more than $750 million in assets. The SPDR fund follows a benchmark that weights about 150 companies by market capitalization.

Today, a new Global REIT ETF called the WisdomTree International Real Estate Fund (DRW) started trading, which, however, emphasizes the biggest dividend payers in developed foreign markets. The expectation is that companies that emphasize paying out strong dividends are by their very nature going to be managed more conservatively

The fund tracks an index made up of some 224 real-estate development and operating companies in 19 developed markets throughout Europe, Asia and the Far East. The benchmark excludes real-estate investment trusts and operators trading on illiquid exchanges and incorporated outside developed countries. WisdomTree also requires companies to have market caps equaling at least $100 million. They must trade at least $100,000 on average per day during a 6-month period.

The largest country weighting in the index goes to Australia, at about 30% of total assets. No. 2 is Hong Kong, at 22%, with Japan at around 11%. Other countries are represented in single-digit percentages. WisdomTree has estimated that its new fund's trailing price-to-earnings ratio is less than 11. The new fund, DRW, charges an annual expense ratio of 0.58%, slightly less 0.60% charged by the StreetTracks fund, RWX.

We expect both these funds to benefit squarely from the developing markets of REIT in other developing countries and may beat US-based REIT ETFs like the iShares Dow Jones U.S. Real Estate Fund (IYR) or the iShares Cohen & Steers Realty Majors Fund (ICF). These are useful tools for diversifying anyone's portfolio to various other countries.