International Real Estate – A Re-think
In June, I started adding international real estate funds into my portfolio. The assets are held in the taxable account. I first added the Alpine International Real Estate Equity fund (EGLRX) and followed by the Fidelity International Real Estate fund (FIREX). Both funds are nicely up by about 8% presently.
However, yesterday I had a rude shock with FIREX because it made a substantial distribution after the close of trading on Sept 8, 2006. The total distribution was $0.87, which is about 6% of NAV (NAV = $14.37 after the distribution). Of this, $0.48 is for short-term capital gains (the worst kind). This is the largest distribution the fund has ever made in its history.
When I was first considering this fund, I did examine the distribution history and I thought the distributions were quite manageable. Now, it appears that I was wrong. I am reconsidering my international real estate allocation. One option would be to skip it until a more tax-efficient vehicle comes along.
PS: SSgA has filed with the SEC to introduce the DJ Global ex-US Real Estate ETF. This should be more tax-efficient. 
Stumble it!
September 9th, 2006 at 5:53 am
indexFundfan, I’m buying PID. (Powershares Intl. dividend ETF)in my taxable account. Pays about 3% div. If Fidelity R/E fund has now just paid a huge div. I’d prob. still stay with it because it is STILL a good fund.That is why I really don’t buy any mutual funds(I have 1 fund only).I put $7,000 dollars into a fund in Jan. about 5 years ago and the market didn’t go anywhere that year and they paid me $700 cap/gains in Dec. My account went down -4% as well.(i moved out of funds at that time) I’ll stay with ETF’s. Just my thoughts. Have a good weekend, Vacman
September 9th, 2006 at 6:08 am
Unfortunately, for international real estate equity, there are currently no ETFs available. I am only aware of a closed end fund RWF.
I hate to pay taxes (who does anyway?!) on something which I could have avoided.
September 28th, 2006 at 12:01 pm
What about IGR? I just got the prospectus, it’s something like 160% invested (i.e. leveraged) and half in USA. Yuck. Not at all what I wanted. I plan to sell mine in January. If I had done any research, I wouldn’t have any to sell … or tax timing issues on my gains
– better lucky than good.
Kirk
September 28th, 2006 at 1:03 pm
Hi Kirk, most closed-end funds are leveraged, and it appears that IGR is one such fund.
It seems that right now, there is no tax-efficient vehicle for international real estate and I intend to skip it for now. I am slowly getting out of FIREX over the next two / three months when I can sell the shares without penalty.
There is an global real estate index fund from Northern funds (NGREX), which tracks the FTSE EPRA/NAREIT Global Real Estate Index. But it also has about half invested in the USA.
October 5th, 2006 at 5:32 am
[...] In September, the Fidelity International Real Estate fund (FIREX) dumped about 6% of its NAV in distributions, more than half of which was in short-term capital gains. As I was holding this in the taxable account, needless to say, I was quite displeased with this outcome. I decided to re-consider my decision to hold FIREX and the international real estate asset class in general. [...]