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fundcoverage@morningstar.comRWX
by Ben Johnson
12/11/2018
SPDR Dow Jones International Real Estate ETF

SPDR Dow Jones International Real Estate ETF RWX is underpinned by a relatively narrow, market-cap-weighted index of foreign real estate firms. The index contains holds more than 110 real estate securities from about 20 nations. This is a much narrower slice of the opportunity set than is captured by its closest index peers. Also, it is a narrower slice yet as measured against a Morningstar Category dominated by more globally oriented competition. While the fund's fee ranks in the lowest quartile of its category, it is a multiple of those levied by its lowest-priced passive competition. These considerations warrant a Morningstar Analyst Rating of Neutral.

REITs make up more than 70% of this portfolio. REITs must distribute the majority of their taxable income to shareholders. RWX's remaining holdings are real estate developers and non-REIT property managers. Developers construct buildings on new or underused land. Unlike REITs, which are restricted from building in some nations, developers can take on more-speculative projects. Developers are more volatile than REITs because their cash flows are less predictable and payout ratios are generally much lower.

The fund invests about 57% of its assets in Pacific-region firms, including 26% in Japanese firms and 15% in Australian companies. This gives it considerable exposure to interest-rate risk in these regions, since the value of property is tied to interest rates and REITs tend to be highly leveraged with considerable interest expenses.



Portfolio Construction

RWX tracks the Dow Jones Global ex-U.S. Select Real Estate Securities Index, which is a float-adjusted, market-cap-weighted index of international real estate securities. Firms must specialize in real estate development or management and derive at least 75% of their income from related activities. The index excludes mortgage and specialty REITs and firms with insufficient size or liquidity. The index is reviewed quarterly. As of the end of November 2018, the index had 113 holdings. The fund uses full replication to track its benchmark, owning each index member in proportion to its weighting in the bogy. The universe of securities contained in the index is narrow relative to other passive peers in the category. It is narrower still when compared against a category that is dominated by more globally oriented competition. These considerations underpin our Neutral Process Pillar rating.

Fees

This fund's 0.59% expense ratio is low relative to the global real estate category, supporting the Positive Price Pillar rating. However, it is the steepest among its closest ETF peers. Because this fund invests in foreign companies, a portion of its distributions could be subject to foreign withholding taxes. When RWX is held in a taxable account, investors can file for tax reimbursement, but if the fund is held in a tax-advantaged account, the foreign taxes cannot be recouped. Because real estate distributions are rarely considered qualified dividend income, only minimal percentages of RWX's distributions have been deemed qualified in recent years.

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