New: Vanguard International Real Estate Fund & ETF

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On November 1st, Vanguard announced the initial trading of their new international real estate index fund, both in mutual fund and ETF share form:

Per their release, the fund invests in real estate investment trusts (REITs) and real estate operating companies (REOCs) in non-U.S. developed and emerging markets. The benchmark index is the S&P Global ex-U.S. Property Index, which includes 425 international real estate securities from 35 developed and emerging markets. Vanguard will assess a 0.25% fee on both purchases and redemptions for mutual fund shares (none for ETF).

I am glad to see a lower-cost option for international real estate investment, although I’m not really familiar with REOCs and how they differ structurally from REITs. I would assume these are best placed in a tax-sheltered account. I need to do more research, but am considering replacing part of my Real Estate portion (currently all US REITs) of my target asset allocation to this fund.

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Comments

  1. Asian REITs are becoming bubbles just like what we just saw in the US.

  2. Interesting, keep us updated on your research Jon. Would love to hear and learn more.

  3. Thanks so much for the update Jonathan! I would definitely be interested to find out more about what the asset allocation gurus say about working this in to the overall scheme of things!

  4. Altruist Financial Advisors, whose site is often referenced on bogleheads.org, seems to really like this fund.

    http://www.altruistfa.com/foreignREITs.htm

    As for taxable vs. tax advantaged, they write:

    “U.S. REITs generally should not be held in taxable accounts. However, this issue is a bit more complex for foreign holdings. If held in a taxable account, you can recover the foreign tax withholding via the foreign tax credit. But that would also subject the fund’s dividends to relatively high income tax rates. You can defer the income tax by putting it in a retirement account, but then you permanently lose the foreign taxes. As a rule, we propose that, if you assume that the foreign tax withholding is a blended rate of 15%, then hold this fund in a taxable account if and only if the fund’s dividend yield is less than the ratio of [15% to [your marginal federal plus state income tax rate for normal income]].”

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