Vanguard Global ex-U.S. Real Estate is a solid choice for foreign real estate exposure, but excluding U.S. securities makes it a misfit among its global real estate Morningstar Category peers. Its paper-thin expense ratio should help it outperform, though, meriting a Morningstar Analyst Rating of Bronze for all share classes.
The S&P Global ex-U.S. Property Index, which this fund fully replicates, has a narrower scope than its global real estate peers. It features real estate investment trusts (REITs) and real estate stocks from around the world but mechanically omits those from the United States. By excluding domestic real estate, the fund restricts its opportunity set and differentiates itself from its peers, which diminishes the impact of its cost advantage.
Asian real estate securities fill most of the U.S.-sized void in this portfolio. As of October 2022, Japanese securities led all countries with its 25% portfolio weight, with Australia (11%), Hong Kong (9%), and Singapore (7%) on its heels. Relatively lax market cap and real estate revenue requirements also bend this fund toward emerging-markets real estate, which constituted 14.5% of the portfolio at October's end. That was materially higher than emerging markets' 1.3% share of the category average, which also parks over half of its portfolio in U.S. real estate.
The index weights stocks by market capitalization, which is a sensible approach. It channels the market’s collective view on the relative value of each holding. Market-cap weighting also curbs turnover and the associated transaction costs.
Market-cap weighting can induce concentration, but this fund’s broad reach precipitates a well-diversified portfolio. Its 700-plus holdings, most in the global real estate category as of October 2022, invite little firm-specific risk. The fund spreads investment across an array of property types and countries, too.
Unlike many of its peers, real estate stocks—not REITs—shape most of this portfolio. This is mostly because of geography. Real estate securities tend to come in the form of development companies in markets like China and Hong Kong, while REITs are more popular in markets like the United Kingdom and Australia. The two different structures should provide similar exposure.

Clarification (Sept. 7, 2023): While annual fees are cheap, buyers of this strategy's mutual fund share classes are subject to a 0.25% purchase fee intended to minimize the impact of transaction costs on the fund. This benefits current fundholders at the expense of new investors. The exchange-traded fund version of this strategy is not subject to the purchase fee.

Analyst Rating

A solid, low-cost foreign real estate fund.

Analyst

Ryan Jackson

SCANA

Clarus

Gladstone Land

Mack-Cali Realty

Li Auto Inc.

Leggett & Platt

Affiliated Mgr Grp 6.375 % Notes 2012-15.8.42 Sr

Gramercy Property Trust

Reaves Utility Income Fund

Blend Labs

Shunning U.S. securities limits this fund’s appeal next to its globally minded peers, but it's a sensibly constructed portfolio that provides an accurate snapshot of the foreign market. Reasonable index construction merits a Process Pillar upgrade to Average from Below Average.
The S&P Global ex-U.S. Property Index starts its construction by surveying the S&P Global Broad Market Index and selecting each stock classified in the GICS real estate sector. To be admitted to the index, candidates must derive at least 60% of their revenue from real estate development, management, operation, and/or investment. Real estate agents, brokers, homebuilders, and financiers are excluded from the index. 
Stocks that make the cut are weighted by market capitalization. This is an efficient approach because it leverages the global market’s collective opinion on the relative value of each holding. The index reconstitutes annually each September.
An index committee holds final discretion over index construction and maintenance, though they rarely deviate from the blueprint. This makes the index flexible and can further stymie turnover.

Average

Process

The portfolio managers on this fund are part of Vanguard’s Equity Index Group. A manager change in July 2022 should not diminish the team’s ability to leverage Vanguard’s global footprint and strong portfolio management technology to track the index, affirming an Above Average People Pillar rating.
Scott Geiger joined Michael Perre as a named manager on this fund in July 2022, replacing Justin Hales. Perre is a principal in the Vanguard Equity Index Group. He has been with Vanguard since 1990 and spent time in various roles at the firm, including accounting, securities lending, and trading. Geiger joined Vanguard in 2006 and started managing portfolios in 2013. 
Vanguard typically names two comanagers on each fund and rotates them to different strategies every few years to promote breadth and depth of expertise. They have access to Vanguard’s global trading desks, which enable them to transact efficiently in various global markets. So, Geiger’s addition to this fund should prove to be business as usual for Vanguard.
Vanguard’s compensation structure aligns managers’ interest with investors’. Managers are compensated with a bonus that factors in the gross, pretax performance of the fund relative to its objectives. This includes managers’ benchmark-tracking efficacy over the prior 12 months.

Above Average

People

The Vanguard Group retains a High Parent rating. 

Mutual ownership, low costs, and a direct-to-investor playbook have helped spur Vanguard's leadership within the United States. Client service missteps notwithstanding, Vanguard over the past decade has grown its market share of U.S. open-end and exchange-traded fund assets at about a 5% annualized clip. At that rate, Vanguard's portion of the U.S. industry will cross 50% around 2035.

True, some competitors can now match or even undercut Vanguard on fees for broad market exposure. But Vanguard's burgeoning advice business could help it keep or even extend that lead. Through Digital Advisor and Personal Advisor Services, Vanguard has built an increasingly compelling ecosystem of advice for investors with simple to complex needs.

Vanguard is also using its advice business to expand overseas, but that's a work in progress. Of Vanguard's USD 7.6 trillion in global assets under management in March 2023, non-U.S. investors owned less than 10%, a figure that has changed little in recent years. Strategic shifts in China and other markets account for the slow pace, including returning money to institutions that had been layering on fees. Vanguard hopes to recoup that money and more by focusing on individual investors and the advisors who serve them. Provided Vanguard sticks to its playbook, its advantages should translate into success abroad, too.

High

Parent

Vanguard Global ex-U.S. Real Estate ETF

VNQI tracks a market-cap-weighted index of non-US real estate investment trusts.

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iShares U.S. Home Construction ETF

iShares U.S. Real Estate ETF

Janus Henderson U.S. Real Estate ETF

Invesco KBW Premium Yield Equity REIT ETF

VanEck Mortgage REIT Income ETF

Direxion Daily Homebuilders & Supplies Bull 3X Shares

Nuveen Short-Term REIT ETF

Invesco Dynamic Building & Construction ETF

US Diversified Real Estate ETF

Invesco Active US Real Estate

iShares Global REIT ETF

iShares Mortgage Real Estate ETF

iShares Residential Real Estate ETF

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Invesco S&P 500 Equal Weight Real Estate ETF

SPDR Dow Jones REIT ETF

Schwab U.S. REIT ETF

Global X SuperDividend REIT ETF

Pacer Funds Trust-Pacer Benchmark Data & Infrastructure Real Estate Sector ETF

iShares Core U.S. REIT ETF

Vanguard Real Estate ETF

SPDR S&P Homebuilders ETF

Real Estate Select Sector SPDR Fund

Alpine Global Premier Properties Fund

JPMorgan BetaBuilders MSCI US REIT ETF

DoubleLine Commercial Real Estate ETF

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iShares International Developed Real Estate ETF

CBRE Global Real Estate Income Fund

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iShares International Developed Property ETF

The history of construction spending since 1993 reveals that this data tends to weaken prior to recessions. For a recent dip in Residential Construction attributed to the rise in mortgage rates, this indicator is charging higher.

Construction Spending Rises

Vanguard Global ex-U.S. Real Estate Index Fund ETF Shares offer exposure to real estate equities outside the U.S. The performance of the VNQI ETF has been disappointing and macro risks are high. Investors may be better off creating their own portfolio of individual REITs or investing in larger U.S.-based REITs with overseas properties.

VNQI: Just Unable To Deliver

Vanguard Global ex-U.S. Real Estate Index Fund ETF Shares is a well-diversified fund with exposure to over 700 securities in the global ex-US region. The fund's yield and price returns have been erratic and mostly negative, making it a risky investment. VNQI's major investments in REITs and REMDs have failed to generate consistent price growth, and the fund's total returns have been disappointing.

VNQI: Portfolio Of 700 International Real Estate Stocks Fails To Deliver

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SPDR Bloomberg International Treasury Bond ETF

VanEck J.P Morgan EM Local Currency Bond ETF

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VanEck International High Yield Bond ETF 

SPDR Bloomberg High Yield Bond ETF

Invesco International Corporate Bond ETF

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Vanguard FTSE Developed Markets ETF

Vanguard Total Stock Market ETF

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SPDR FTSE International Government Inflation-Protected Bond ETF

Nearly all major asset classes experienced gains in the week through June 2, except for commodities, which saw a fractional decline. Vanguard Real Estate Index Fund rose 3.4% last week, marking its first weekly increase in over a month.

U.S. REITs Led Last Week's Broad-Based Rallies In Global Markets

VNQI sounds like a great investment on the surface, offering a chance for investors to get exposure to international REITs at a cheap price. It has an erratic dividend history and weak capital appreciation since inception.

4 Reasons To Stay Away From VNQI

U.S. REITs Rebound, But Bearish Trend Still Weighs On Sector.

U.S. REITs Rebound, But Bearish Trend Still Weighs On Sector

You don't need to buy individual REITs to benefit from their growth and income potential.

3 Rock-Solid REIT ETFs for Generational Wealth Creation

Interest rates have jumped in February, putting pressure on many spots including global real estate. With a stronger dollar lately, too, the Vanguard Global ex-U.S. Real Estate ETF has underperformed.

VNQI: Shares Stuck In A Downtrend, Wait For A Reversal

With the U.S. REITs valuation currently at a premium, REIT investors' total return potential are limited in the years to come. Hence, it's a good time to start looking abroad and consider international REIT stocks.

VNQI Vs. VNQ: Global REIT Is Too Attractive To Ignore

VNQI is a simple international REIT ETF. The fund provides investors with diversified exposure to hundreds of REITs, from dozens of countries, and all relevant industry segments.

VNQI: International REIT ETF, Diversified Holdings, Cheap Valuation

The major asset classes continued to recover in the trading week through Friday, Nov. 11, based on a set of ETF proxies. The lone exception: a broad measure of commodities.

Real Estate Ex-U.S. Led Ongoing Rebound In Markets Last Week

Strategic Residential & Apartment Real Estate ETF

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Pressured by the broader housing cooldown, Apartment REITs have been among the weaker-performing property sectors over the past quarter despite achieving record-setting rent growth throughout the summer. While the era of 20% rent increases on new leases is over, there remains significant “embedded” rent growth in below-market renewals that should power impressive FFO growth into 2023.

Apartment REITs: From Record Rents To Rent Control

Pressured by the painfully slow “return to the office” with daily utilization rates still 50% below pre-pandemic norms, Office REITs are among the worst-performing property sectors this year. Office leasing activity and REIT earnings results have been surprisingly resilient, but corporations won't pay for half-empty space indefinitely and have been leveraging softening market conditions to extract generous concessions.

Office REITs: Work-From-Home's Recession Reckoning

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US stocks led the October bounce. Vanguard Total Stock Market Index Fund surged 8.1%.

Major Asset Classes: October 2022 Performance Review

Vanguard's Global ex-U.S. Real Estate ETF is correlated to large-cap and value securities. Research suggests that high-LTV real estate often tends to outperform low-LTV real estate.

Rotating VNQI In Your Portfolio

US trading resumes tomorrow after a long Labor Day weekend, with the backdrop of risk-off sentiment dominating recent activity in the major asset classes. US stocks (VTI) posted a relatively middling loss, shedding 3.7% last month.

Major Asset Classes: August 2022 Performance Review

The iShares International Developed Property ETF, WPS, invests based on the S&P Developed ex-U.S. Property Index, meaning no EM exposure like Chinese Real Estate. The Vanguard Global ex-U.S. Real Estate ETF, VNQI, invests based on the S&P Global ex-U.S. Property Index, thus only US assets are excluded.

WPS Vs. VNQI: Better Results And No Exposure To EM Real Estate

Our investment principle is heavily influenced by Ray Dalio, and this article elaborates on the role of geographical diversification. Diversification across specific funds or stocks is the last step. The grand scheme starts with risk isolation, asset class allocation, and geographical diversity.

VNQI, VNQ, And Ray Dalio

VNQI provides exposure to real estate stocks in more than 30 countries around the world. With over 680 holdings, the fund is well-diversified across constituents. This fund offers an attractive dividend yield, which has prompted many investors to pull the buy trigger.

VNQI: Hawkish Monetary Policy Is A Headwind For REITs

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Vanguard Short-Term Inflation-Protected Securities ETF

Materials Select Sector SPDR Fund

Energy Select Sector SPDR Fund

Inflation continues to be top of mind for investors, with costs for energy, food and other products hovering near levels not seen in 40 years. This has investors seeking out ways to protect their portfolio against higher prices – either with individual equities or inflation exchange-trade funds (ETFs).

10 Best Inflation-Fighting ETFs for Higher Costs

The Vanguard Global ex-U.S. Real Estate ETF is a good choice to invest in international REIT due to its low cost, relatively low valuation, and excellent diversification.

VNQI: Dividend Yield Surged Above 6% For The 3rd Time In A Decade

International equities and securities are materially undervalued. VNQI is a simple international real estate index ETF, and offers investors exposure to undervalued international securities and holdings.

VNQI: Simple, Cheap, Strong International Real Estate Index ETF

Inflation-indexed Treasuries (TIP) topped performance list in November with a 0.9% gain. A broad measure of US bonds (BND) was in second place with a 0.2% return.

Major Asset Classes: November 2021 Performance Review

Vanguard Total US Bond Market (BND) bucked the trend and posted a fractional 0.05% weekly gain. There are signs in early trading today (Mon., Nov 29) that global markets are stabilizing after Friday's rout.

Only U.S. Bonds Were Spared From Last Week's Widespread Losses

VNQI tracks a global property index with a tilt towards the Japanese and Australian equities (the Pacific region). As the Pacific region has an outsized impact on its total returns, investors shunning too-large exposure to the yen or the commodity-sensitive Australian dollar should think twice before going long.

News for Vanguard Global ex-U.S. Real Estate ETF ETF (VNQI)