The Key to Real Estate Is (Global) Location, Location, Location

You can hardly read the business section these days without some mention of the “global economy.” The growth of many economies around the world eclipses U.S. economic growth, according to data from The World Bank. More than ever, today’s global market is connected to how we invest here at home.

In pursuit of the kind of growth domestic investors may have seen in the past, many who are willing to take on more risk, are scanning the globe for opportunities for higher return potential driven by international growth and the rise of a global middle class.

One of the biggest global opportunities can be found in real estate, estimated at more than $5 trillion1 in revenue.

Although global real estate is an equity investment, it has tended to have a higher dividend yield than the broader equity markets.2 Additionally, global real estate provides a great source of diversification as it has a historically low correlation to other asset classes such as treasuries, investment-grade bonds and stocks.

A (practically impossible) challenge for the average investor is creating a global real estate portfolio and staying knowledgeable about this intricate market in all its idiosyncrasies across the world. Mutual funds such as the Principal Global Real Estate Securities Fund can give investors access to this asset class through local traders who understand the markets where they live.

Over the next 12 to 18 months, we think the outlook for the global real estate sector is consistent with the view of the global economy — we believe it’s a world of steady improvement.

 

1 “Global Commercial Real Estate: Market Research Report,” IBISWorld, Nov. 2013.
2 For the five-year period ended 3/31/14, global real estate securities had a higher current yield than other dividend-paying equities. Global real estate securities are represented by the FTSE EPRA/NAREIT Developed Index; large-cap stocks are represented by the S&P 500 and the Russell 1000 Index; mid-cap stocks are represented by the Russell Midcap Index; small-cap stocks are represented by the Russell 2000 index. As of 3/31/14, current yields for the indices were as follows: FTSE EPRA/NAREIT Developed Index (3.73%); S&P 500 (1.94%); Russell 1000 (1.93%); Russell Midcap (1.52%); and Russell 2000 (1.29%). Investors cannot invest directly in an index. Past performance does not guarantee future results. Source: FactSet.

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Past performance is no guarantee of future results

Carefully consider a fund’s objectives, risks, charges and expenses. Contact your financial professional or visit principalfunds.com for a prospectus, or summary prospectus if available, containing this and other information. Please read it carefully before investing.

Investing involves risk, including possible loss of principal.

Asset allocation and diversification do not ensure a profit or protect against a loss.

Real-estate investment options are subject to some risks inherent in real estate and real-estate investment trusts (REITs), such as risks associated with general and local economic conditions. Investing in REITs involves special risks, including interest rate fluctuation, credit risks and liquidity risks, including interest conditions on real estate values and occupancy rates. International and global investing involves greater risks such as currency fluctuations, political/social instability and differing accounting standards.

Principal Funds are distributed by Principal Funds Distributor, Inc.

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