There is a growing and profitable trend happening in the United States. Many investors are unaware it is even happening.

I completely agree with Carla. Right now, positioning your portfolio to capture dividends and growth from the real estate recovery makes total sense. 

But if you read my articles, then you may know that I always go a step further.#-ad_banner-#

My key takeaways
Diversification, even within the same asset class, is a key feature of a well-designed portfolio. Within the housing REIT sector, investors would be wise to have positions in single-family home REITs and multi-family apartment REITs. 

But this diversification shouldn’t stop here. 

Having a position in international real estate markets not only mitigates unknown future U.S.-based risk (like a surprise rate hike or direct government intervention) but it can capture profits from the global real estate recovery. 

It looks like the worst is over in the European Union with the European Central Bank vowing to do whatever it takes to support the region’s struggling nations. Not to mention, news that the world’s wealthiest man, Carlos Slim, just purchased more than $500 million of residential housing assets from the Spain-based CaixaBank, indicate his bullishness on the real estate recovery.

Meanwhile, in the world’s second-largest economy by gross domestic product, China, housing prices advanced last December, ending eight consecutive months of declines. Even in the beat-down real estate market of Dubai, in the United Arab Emirates, there was a 65% increase in the number of real estate transactions in 2012 from 2011. 

Add it all together, and all I see is a brighter future for the international real estate market.

The easiest way for investors to profit from this trend is by investing in exchange-traded funds (ETFs) that track international REITs. 

My favorite international REIT ETF
Despite the mouthful of a name, iShares FTSE EPRA/NAREIT Global Real Estate ex-U.S. Index Fund (Nasdaq: IFGL), a $1.6 billion REIT ETF, is up 27% in the past 12 months and yields close to 6%. The ETF specializes in stocks involved in real estate development and ownership in economically developed countries. The ETF’s holdings are most heavily weighted in China, with 5.25% of assets in Sun Hung Kai Properties, one of that country’s largest home developers. Windhaven is the ETF’s largest institutional holder.

Technically, shares have been in a steady uptrend since Sept. 1, 2012, but have hit resistance at the $33.50 level. Buying a breakout close above $34 makes solid technical sense. My 12-month target is $36.

Risks to Consider: International REITs, like all REITs, are extremely sensitive to interest-rate fluctuations. International central banks often follow the Federal Reserve’s moves. Therefore, should the Fed begin to tighten its economic policy, then foreign banks could follow, hurting returns on international REITs.

Action to Take –> With $579 billion managed by 166 SEC-registered REITs in the United States, there may be a scenario of too much money chasing too few opportunities in the U.S. real estate market. I think there is still much upside potential in the domestic REIT space, but the market will eventually saturate. 

This fact combined with the value of diversifying into growing international markets creates a compelling case for international REIT ETFs. I like IFGL on a breakout close above $34 with a 12-month target of $36 and an initial stop at $33.

P.S. — Real estate isn’t the only thing Carla Pasternak, editor of High-Yield Investing, is talking about. If you’re looking for a smarter, safer, and more profitable approach to income investing than you may be following now, then you need to know about Retirement Savings Stocks. Simply put, if you’re looking for a second income stream for your retirement, then it’s the only way to go. Find out more in this special presentation.