Claymore Canada has introduced a couple of ETFs that track interesting asset classes: Claymore Global Real Estate ETF (CGR) and Claymore Global Infrastructure ETF (CIF). CGR tracks the Cohen & Steers Global Realty Majors index, which is composed of 75 securities representing the US (40%), UK (10%), Japan (13%), Hong Kong (10.5%), Australia (11%) and minor weighting to other countries. The MER for the ETF is 0.65% and yields 4.4%. The major alternatives, all of which trade on the US exchanges, are: Cohen & Steers Global Realty Majors ETF (GRI, tracks the same index as CGR and has a MER of 0.55%, First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund (FFR, MER of 0.60%) and SPDR DJ Wilshire International Real Estate ETF (RWX, MER 0.60%).

While CGR is much more diversified than the iShares CDN REIT ETF (XRE) and has a decent yield, I wonder if it is appropriate to add foreign real estate to a portfolio, considering that most investors’ allocation to REITs is already small, say 5% to 10%. In any case, there is reason to adopt a wait-and-watch stance because according to the prospectus, the ETF will track the underlying index’s returns through derivatives and incur expenses in addition to the MER. Moreover it is not clear if a market for CGR can be sustained because global real estate is cooling (down 20% over one year) after extremely good returns over a five year period.

This article has 6 comments

  1. I’m in the midst of reviewing infrastructure ETFs for our firm. If you’re interested in Infrastructure and the Claymore Infrastructure ETF listed above, you may want to compare it against the iShares Global Infrastructure Fund (IGF) that tracks the S&P Global Infrastructure Index and the SPDR FTSE/Macquarie Global Infrastructure 100 ETF (GII) that tracks the FTSE Macquarie Global Infrastructure Index. Both of these funds are U.S. listed.

    Ernst and Young also has an excellent report “Investing in Global Infrastructure 2007” available here:

    http://www.ey.com/global/content.nsf/International/Real_Estate_Library_Global_Infrastructure_Emerging_Asset_Download

  2. Canadian Capitalist

    Thanks for the information Andrew. Do you have an opinion on adding Global Real Estate to a portfolio? I noticed that DFA offers a fund in this area.

  3. “Moreover it is not clear if a market for CGR can be sustained because global real estate is cooling (down 20% over one year) after extremely good returns over a five year period.”

    Sounds like buying high to me. Are the going to sell off and shut down just as it starts to go up in the future? 😛

  4. Canadian Capitalist

    Xenko: That’s a concern with new ETFs. For instance, FFR has attracted a mere $4.5 million in assets. Granted, competitor RWX has almost $1 billion in assets and being a first mover in Canada might be to CGR’s advantage. Only time will tell.

  5. There are approx. 20 countries with REIT-like legislation in place. US REITS dominate the developed market REIT universe followed by Australia, Great Britain and Japan. A number of emerging markets also have listed REITs.

    Unlike Infrastructure, there is enough data to demonstrate with statistical significance that Global Real Estate is a separate asset class with its own independent risk and return characteristics. I have reviewed data that indicates Global REITs have a low correlation to the S&P 500, and Russell 1000 Value index. Correlation increases when Global REITS are compared to the Russell 2000 Value Index. There is also data that suggests that the various Global REIT markets are not highly correlated with one another.

    So investing in Global REITs should offer a potential diversification benefit to Canadian investors and merits consideration.

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