A reader left a comment on an old post in which I opined that 20% in REITs, per David Swensen, is too high for my liking.The reader asked;
What is your opinion of WPS? WPS is in its lower range. Do you see WPS gaining in the forthcoming days? Is international real-estate moving better than domestic?
WPS is the iShares S&P World Property Ex-US. Like many broad, foreign RE ETFs the largest holding is Westfield Group which is an Australian mall operator with about half of it's properties in the US. Also like other similar funds it is heavy in Japan and Hong Kong.
I don't really know what to expect for WPS in the coming few months let alone "the forthcoming days" so I responded with questions for him to think about and I thought it would be useful to post here in terms of exploring process a bit.
A lot of what I have read lately talks about the real estate crunch just now getting to places like Australia, Ireland and Spain (here is a synopsis from Mish). How does this impact Westfield, if at all?
Further, WPS is 20% in Japan. Personally I want no part of Japanese equities or real estate, I have never been in the camp that this is the year for Japan and that has not been wrong very often.
The peg of the Hong Kong dollar to the greenback does strange things to interest rates and inflation in Hong Kong which would seem to pose some sort of risk. Clearly real estate companies in Hong Kong have done quite well this decade but the peg creates a risk I don't think I can quantify especially as the dollar has gone from being generally weak to getting pasted.
Lastly I asked the reader if he was interested now because it was down from where it had been or because he had some sort of forward looking reasoning for thinking it would go up from here.
I have no idea whether the reader should buy WPS but in deciding whether or not to buy the fund these are the issues I would want to sort out before doing so.
5 comments:
That picture is strangely reminescent of a set of ultra-modern units built on an adjoining island to Expo 67 in Montréal. Am I right? Willy
Willy, you are probably correct. I posted this picture a few months ago and someone commented that this was from Montreal.
I go back and forth on this type of discussion every day in my head. I know little about international property values, but I like diversification. OTOH, I don't want anything in Japan. I just think they're going nowhere. I can't remember how many times I've heard "this is Japan's year!" in the last decade.
The end result is that when I re-purchase REITs (not market timing. Just not doing it today) I'll probably put most of the money in a US REIT and a smaller percentage of the money in an int'l REIT.
This is Japan's year, lol.
I should probably add that it might be a little easier to go narrower into single countries via stocks. there are RE stocks from healthy countries that are down a lot.
All of that is why I use a CEF (AWP) for international real estate. Much better for me in this case to pay a manager than to try to sort out this Rubik's Cube. Heck, I can't even tell you what my own house is worth anymore! To be sure, AWP has gotten whomped too, though much of it was post-IPO, tax loss selling. The result is a nice yield, if it holds up.
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