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Portfolio > Alternative Investments > Real Estate

Vanguard Rolls Out Global Real Estate Fund, ETF

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Vanguard launched a new international real estate index fund Monday with ETF shares based on the S&P Global ex-U.S. Property Index.

The fund invests in real estate investment trusts (REITs) and real estate operating companies (REOCs) in emerging markets and developed markets outside the United States.

The Vanguard Global ex-U.S. Real Estate Index Fund is offered in four share classes: investor shares, with an estimated expense ratio of 0.50%; institutional shares, 0.30%; signal shares, 0.35%; and ETF shares (VNQI), 0.35%.

On average, international real estate mutual funds have an asset-weighted expense ratio of 1.31%, according to Lipper. Competing international real estate ETFs have an average expense ratio of 0.54%, Morningstar reportrs.

Diversification Play

“Modest exposure to real estate investments in a broadly diversified investment portfolio can help moderate overall portfolio volatility and serve as a hedge against inflation,” said Vanguard’s chief investment officer, Gus Sauter, in a press release.

“With international real estate securities representing a growing portion of the overall real estate market, a counterpart to our domestic REIT Index Fund is a natural addition to our index fund lineup,” Sauter explained.

The $14.5 billion Vanguard REIT Index Fund was launched in 1996, and ETF Shares of the fund (VNQ) began trading in 2004.

The Vanguard REIT ETF garners about 65% of all money flowing to real estate ETFs, according to Bloomberg.

Going Global

Domestic assets represent 30% of the global real estate market; overseas assets represent 70%. Investors wishing to hold a market-weighted global real estate portfolio could invest in the two funds proportionally, the fund giant says.

Vanguard Global ex-U.S. Real Estate Index Fund will attempt to replicate the S&P Global ex-U.S. Property Index, a free-float-adjusted, market-capitalization-weighted index that measures the equity market performance of 425 international real estate securities from 35 developed and emerging markets.

The minimum initial investment requirement is $3,000 for investor shares, and Vanguard will assess purchase and redemption fees of 0.25% on non-ETF shares to defray the transaction costs and taxes associated with buying and selling foreign real estate securities.

REITs and REOCs purchase office buildings, hotels, and other real estate property. Since they often perform differently than the overall equity and fixed income markets, they may offer some diversification to a portfolio already made up of stock and bond funds, the fund giants explains.  


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