SPDR Dow Jones Global Real Estate ETF invests in U.S. real estate more heavily than most but otherwise provides an accurate snapshot of the global real estate market. Its low fee should translate into a durable long-term performance edge, warranting a Morningstar Analyst Rating of Bronze.

The Dow Jones Global Select Real Estate Securities Index, which underpins this fund, is a broad collection of real estate investment trusts and real estate operating companies from around the world. Its constituents are large, liquid, and derive most of their revenue from the ownership and operation of real estate. As such, this fund reflects the composition of the global real estate market.

The index weights stocks by market capitalization, which is a sensible and cost-efficient approach. Market-cap-weighting channels the market's collective view of each holding's relative value. It also curbs turnover and the associated transaction costs, with help from the index's turnover buffers.

The best low-cost, cap-weighted index funds capture the full opportunity set available to their active peers, and this fund checks that box. Its market-cap orientation mirrors the global real estate Morningstar Category average, and the two portfolios tend to trade at similar valuations. Specialized REITs that focus on the likes of timber and cell towers are off-limits for this fund, but it favors many of the same property types as its average peer. By mimicking the contours of the category average, this fund enhances the impact of its competitive fee and positions itself for strong category-relative performance.

That said, this fund’s country allocation is somewhat lopsided. U.S. securities accounted for nearly 70% of the portfolio at the end of October 2022, which exceeded the category average by 23 percentage points. This zealous stake poses risk for investors, as fluctuations in the U.S. market will affect category-relative performance.

While this concentration bears monitoring, the fund diversifies well elsewhere. A broad reach leads to little firm-level concentration. The fund spreads investment over an array of property types that respond to differentiated industry factors and vary in interest rate sensitivity.

REITs tend to be more sensitive to interest rates than most sectors, in part because interest rates impact property values directly. Also, their cash flows are fixed from regular rent collections, making them more bondlike than most other sectors.

Analyst Rating

A cheap snapshot of the global real estate market.

Analyst

Ryan Jackson

Prologis

Equinix

Welltower

Public Storage

Digital Realty Trust

Realty Income Corp

Simon Property Group

Extra Space Storage

AvalonBay Communities

Equity Residential

This fund’s allocation to U.S. securities is overzealous, but it puts its competitive fee to work by capturing the global real estate opportunity set reasonably well. This portfolio is well-diversified, channels the market's expertise with market-cap-weighting, and rarely turns over, driving an Average Process Pillar rating. 

The Dow Jones Global Select Real Estate Securities Index is a broad collection of worldwide stocks that derive at least 75% of their revenue from the ownership and operation of real estate. All candidates must clear basic liquidity screens and exceed $200 million in market-cap to be eligible. Over 90% of the index comprised REITs as of October 2022, but that is not an index requirement. Mortgage and hybrid REITs, mortgage providers, homebuilders, and real estate agents are excluded from the index. An index committee has ultimate discretion over the index constituents, but it very rarely deviates from the mechanical rules.

Stocks that make the cut are weighted by market-capitalization. Market-cap-weighting leverages the collective brainpower of the broad market to size its positions. It also mitigates turnover and the accompanying transaction costs.

The liquidity and market-cap requirements are not as stringent for existing index constituents, which may dip to $100 million in market cap before they're removed from the index. This leeway has helped curb turnover. Portfolio turnover has ranked in the category's lowest decile in nine of the past 10 years, adding to its advantage over costlier, more turnover-prone peers.

Average

Process

State Street Global Advisors' Global Equity Beta Solutions team manages this fund. The team's global footprint, trading, and risk management processes enable low transaction costs and tight index tracking, supporting an Above Average People Pillar Rating. 

Michael Feehily, Karl Schneider, and Keith Richardson are the named managers on this fund. Feehily is the head of the global equity beta solutions team and serves as the chairperson for SSGA's trade management oversight committee. He has been with State Street since 1992 and joined SSGA in 2010. Schneider is a managing director of SSGA and the deputy head of global equity beta solutions for the Americas region. He has been with SSGA since 1997. Richardson joined SSGA in 1999 and has managed this fund since 2017. 

The managers' objectives are to mitigate tracking error, transaction costs, and the tax consequences of their trades. A team of analysts helps the managers effectively track the index by anticipating index changes and corporate actions. The management team’s compensation is tied to index tracking performance, operational efficiency, and contribution to process improvement, which aligns their interest with investors'. The team is subject to independent risk oversight.

Above Average

People

State Street Global Advisors is under new leadership but continues to move along the positive trajectory established by former leaders. SSGA maintains its Above Average Parent Pillar rating.
Cyrus Taraporevala, who oversaw much of SSGA’s recent transformation, retired from the CEO position in December 2022 and passed the baton to his successor, Yie-Hsin Hung. She inherited a business that’s become more disciplined with its fund lineup. Fees have come down, while product development remains focused on fixed-income and sustainability funds, and many of SSGA’s launches have echoed that intention.
The seeds that SSGA planted over the past several years have been bearing fruit. It built out a low-cost series of portfolio building-block ETFs in the U.S. bearing the “SPDR Portfolio” branding. SSGA launched these later than its industry rivals, so they aren’t as large. But they’re competitive, with solid management and low fees, which helped them consistently take in new money over the past several years.
SSGA continued to overhaul its ETF business in Europe with most of its recent fixed-income and sustainability fund launches. Many of these funds track indexes and charge relatively low fees. With operations in the U.S. and Europe standing on a firm foundation, SSGA will put more focus on its Asia-Pacific business—the smallest regional segment of its business.

Parent

SPDR Dow Jones Global Real Estate ETF

RWO tracks a cap-weighted index of global REITs and real estate companies. The fund invests across the market-cap spectrum.

Certain areas of commercial real estate like warehouses and data centers had a strong first half and are well-positioned for growth in the coming periods. Macroeconomic trends like economic uncertainty and downturn have made commercial real estate a risky domain, yet competition within the space continues to grow. I rate RWO a sell, as its top holdings are already well-diversified and capable of greater momentum than this ETF itself.

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