VNQI vs RWX: The Structural Divergence in Ex-U.S. Real Estate Exposure

The choice between VNQI and RWX is a fundamental trade-off between a low-cost index fund and a concentrated portfolio. Their divergent risk-return profiles stem directly from structural design: VNQI is built to track a broad market, while RWX is constructed to amplify specific regional exposures. The cost and concentration metrics make this a stark contrast.

The expense ratio is the clearest starting point. VNQI charges a minimal 0.12%, while RWX's fee is nearly five times higher at 0.59%. This isn't just a difference in price; it's a direct drag on long-term returns. For a passive investor, this cost advantage compounds, making VNQI a more efficient vehicle for capturing broad ex-U.S. real estate market returns.

This cost efficiency is paired with vastly different portfolio construction. VNQI's strategy is one of broad diversification, holding 682 holdings. Its top three positions each represent less than 4% of the fund, spreading country and issuer risk thin. RWX, by contrast, operates with a much smaller portfolio of 119 stocks. This concentration means its largest position exceeds 7%, giving any single market or company a disproportionate influence on the fund's performance. The result is a portfolio that is far more sensitive to the fortunes of its top holdings.

The higher dividend yield of VNQI-4.27% versus RWX's 3.36%-is a direct outcome of this low-cost, low-turnover strategy. A broader index fund with lower expenses can typically distribute a higher portion of its income to shareholders. RWX's higher fee and concentrated holdings, which may involve more active management or specific regional bets, leave less room for a generous yield.

The bottom line is a structural choice. VNQI offers a steady, diversified ride through the global ex-U.S. real estate landscape, designed to absorb regional volatility. RWX is a more tactical tool, where a handful of markets and issuers are allowed to drive returns more decisively. For most investors, the lower cost and broader diversification of VNQI represent a more resilient foundation.

Performance and Risk: Concentration vs. Diversification

The choice between these two global ex-U.S. real estate ETFs boils down to a classic trade-off: concentration for potential outperformance versus diversification for stability. The data from the past year illustrates this dynamic clearly. As of December 18, 2025, the SPDR Dow Jones International Real Estate ETF (RWX) delivered a 1-year return of 21.8%, significantly outpacing the Vanguard Global ex-U.S. Real Estate ETF (VNQI) at 15.9%. This gap is a direct result of RWX's structural concentration. With fewer holdings and a portfolio where the largest position accounts for over 7%, the fund's returns are more decisively driven by the performance of its top holdings and specific regional markets.

Yet this concentration does not equate to higher systemic risk. When measured by exposure to broad market shocks, the funds are remarkably similar. Both experienced nearly identical maximum five-year drawdowns, with VNQI at -35.76% and RWX at -35.90%. This convergence shows that while RWX's concentrated bets can lead to sharper short-term gains, they do not make the fund more vulnerable to the kind of widespread downturns that affect the entire asset class. The underlying real estate market, not portfolio structure, is the primary driver of these deep losses.

The nuance lies in sensitivity to overall market swings. VNQI's broader diversification translates into a marginally lower beta. The fund has a beta of 0.88 compared to RWX's 0.82. This means VNQI's price moves are slightly less correlated with the volatility of the broader U.S. stock market. For investors seeking a smoother ride that better hedges against equity market turbulence, this lower beta is a tangible benefit of diversification.

The bottom line is a clear performance-risk trade-off. RWX's concentrated holdings are the engine for its recent outperformance, but they offer no protection against the asset class's inherent volatility. VNQI's diversification provides a more stable, market-resistant profile and a higher dividend yield, but it comes at the cost of leaving some of the concentrated market's upside on the table. The right choice depends on whether an investor prioritizes letting a few strong markets drive returns or prefers a steadier, broader exposure.

Regional Exposure and Macroeconomic Sensitivity

The strategic bets embedded in these two global ex-U.S. real estate ETFs are defined by their divergent regional exposures, making them sensitive to very different local economic shocks. VNQI's portfolio is heavily tilted toward the Asia Pacific, with 59.79% of its assets allocated to the region, where Japan alone commands 22.89%. RWX, by contrast, has a slightly smaller APAC weighting of 53.95%, but its concentration is more diversified, with Japan at 29.96% and significant stakes in the UK and Australia. This structural difference means each ETF is positioned to benefit from or be hurt by distinct regional trends.

The current state of the APAC real estate market is one of a "corrugated" recovery. While occupier performance has rebounded, with two-thirds of APAC CRE markets registering year-over-year growth in the second quarter of 2025, the investment landscape is complex. Office investment activity has been led by Japan and Korea, highlighting a bifurcation where some markets are more resilient than others. This nuanced picture means that an ETF's specific country mix is critical. VNQI's heavy Japan exposure ties it directly to that nation's economic trajectory, which is now a primary risk.

For VNQI, the specific vulnerability is Japan's potential economic stumble. Forecasts suggest the country will narrowly avoid a recession in 2026, with growth forecast at just 0.1%. This fragile outlook, compounded by a complex policy environment with a divided Diet and a central bank on a gradual normalization path, creates a headwind for real estate fundamentals. The ETF's portfolio is thus exposed to a domestic slowdown that could pressure occupier demand and rental growth in its largest single country holding.

RWX's risk profile is defined by its concentration in other developed markets. Its 9.63% allocation to Australia and 12.81% to the UK make it sensitive to the specific monetary and fiscal policies in those jurisdictions. While Australia's economy is showing strength, with GDP growth of 1.8% year-on-year in Q2 2025, the path of interest rates and housing market stability will be key. The UK's exposure adds another layer of sensitivity to its own economic and political uncertainties. This concentration means RWX is less exposed to Japan's specific risks but more vulnerable to a downturn or policy misstep in its core non-APAC developed markets.

The bottom line is a story of divergent regional bets. VNQI is a Japan-centric play on the APAC recovery, making it susceptible to a domestic slowdown. RWX is a broader developed-market fund with a significant UK and Australia tilt, exposing it to the risks of those specific economies. Both are navigating a complex, selective investment environment, but their vulnerabilities are geographically distinct.

Catalysts, Risks, and Investment Implications

The structural differences between VNQI and RWX are now clear. One is a broad, low-cost index fund designed to blend international real estate into a portfolio, while the other is a more concentrated vehicle that allows specific markets to drive returns. This divergence defines the forward-looking catalysts and risks, and ultimately guides the choice for investors.

The key catalyst for both funds is the global real estate recovery, but its impact will be filtered through their distinct portfolios. Industry leaders see a "corrugated" rebound, with dealmaking improving and transaction volumes rising. However, the monetary picture is complex, with higher rates constraining funding. The potential for rates to stay elevated for longer is a direct headwind for real estate valuations. This pressure will disproportionately impact RWX, whose concentrated, higher-yielding holdings are more sensitive to shifts in discount rates. In contrast, VNQI's broad diversification across 682 holdings provides a natural buffer against any single market's volatility.

The major risk for VNQI lies in its heavy tilt toward Japan, which faces a complex policy environment. The Bank of Japan is expected to deliver its next rate hike in January 2026, a move that could trigger short-term market dislocation. This policy normalisation is occurring against a backdrop of political uncertainty, as Japan's ruling coalition lacks a majority in either house, increasing pressure for social spending. While the investment case for Japanese multifamily remains robust, this confluence of monetary and political factors introduces a specific, concentrated risk that is less pronounced in RWX's more geographically dispersed portfolio.

The final investment implication is a straightforward synthesis of these factors. Investors should choose based on their strategic goals and risk tolerance. For those seeking to blend international real estate into a portfolio as a steady, diversified income stream, VNQI's lower cost (0.12% expense ratio) and higher yield (4.27%) are compelling. Its structure is built to absorb regional noise. For investors who are comfortable with higher concentration and want to allow specific markets to shape outcomes, RWX offers a path to potentially higher returns (21.8% over the past year) with a more focused exposure. The choice is not about which fund is "better," but which aligns with whether you want your real estate allocation to blend in or stand out.