Berko: ‘Spider’ tip some good advice
By Malcolm Berko Taking Stock June 28, 2013 11:10PM
Updated: August 2, 2013 6:32AM
Dear Mr. Berko: About two years ago, our good friends of 19 years, who are also our next-door neighbors, hired a new money manager. Seeing as these folks tend to be very critical and often find fault with many professionals (primarily health care people, lawyers and stockbrokers), we figured it wouldn’t be long until they began finding fault with their new broker. But so far, they are happy with him. He only invests in exchange-traded funds, which I do not understand. They showed me the quarterly and annual portfolio reviews prepared by the money manager, and I thought they looked good. So I figured I’d call him and see what he could do for me. He was very nice to talk with, but he would not take my business, because I wanted to invest only $10,000; he said his minimum account is $250,000. But he was nice enough to recommend 200 shares of an investment called SPDR Dow Jones International Real Estate, which he said is a little risky but yields just under 6 percent. Please tell me what this is and whether it is a good investment.
FT, Port Charlotte, Fla.
An exchange-traded fund, like a traditional mutual fund, is an investment company that pools investors’ money and uses professional managers to invest in specific sectors of the market, such as natural gas, real estate investment trusts, utilities, banks, municipal or corporate bonds, small- or large-cap stocks, gold, Treasury inflation-protected securities, technology, health care, biotech, energy, dividend growth, retail, homebuilding, emerging markets, European and Asian markets, etc. But unlike mutual funds, ETFs issue a fixed number of shares and trade on the New York Stock Exchange like a common stock. There are very few professionals who manage portfolios of ETFs well, and if this is the fellow I think he is, then he has been doing a yeoman’s job for years. I like ETFs because they are less volatile and are broadly diversified, therefore offering safer capital gains potential than individual issues.
But I do not like ETF bond funds and never did.
SPDR (pronounced “spider”) is an acronym for Standard & Poor’s Depositary Receipts, a $2.3 trillion family of ETFs traded in the U.S., Europe and Asia and managed by State Street Global Advisors, which is owned by State Street Bank and Trust Co. The SPDR S&P 500, which is designed to track the Standard & Poor’s 500 index, and the Dow Diamonds may be the most well-known ETFs.
If you are an income and growth investor, I think you’ve been given some pretty good free advice. SPDR Dow Jones International Real Estate (RWX-$37.68) — up from its low of $18 in March 2009, down from its initial public offering of $60 in November 2007 — now trades near its 52-week high. And its $2.72 dividend yields a squeak under 6.3 percent. RWX has a position in nearly $4 billion of commercial and industrial properties via its investments in foreign real estate stocks, such as Unibail-Rodamco (France, Belgium, Italy, Spain, Portugal), trading at $182, Land Securities REIT in the United Kingdom, trading at $883, Westftrust Stapled in Australia, at $2.82, Hongkong Land Holdings, at $6.47, Mitsui Fudosan in Japan, trading at $284, and Brookfield Asset Management in Canada, trading at $31, to name a few. Real estate prices in Europe have fallen sharply with the brouhaha across the pond. If prices have bottomed out, RWX could move slowly higher. This is a contrarian opinion, of course. The Irish and Scottish real estate markets, which have been in limbo, are expected to recover next year. And the Australian real estate market, which is going through its second year of falling prices, looks as if it wants to turn around soon.
RWX is a very speculative issue; however, I’d be comfortable owning 200 shares and waiting for potential appreciation while earning a good dividend.
Address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.