Global REIT ETF Revolution?

May 17, 2012

My colleague Devin Riley recently lamented the lack of focused global real estate ETFs. That may be about to change.

Global real estate ETFs, for whatever reason, haven’t seen the innovation of their domestic counterparts.

And, as Devin described in his blog, this has left the door of opportunity wide open—a door Thomson Reuters and Global Property Research are hoping to walk into.

To be clear, Devin was decrying the lack of single-country and emerging markets real estate ETFs, not the dearth of broad market options. What Thomson Reuters and Global Property Research are doing with their new real estate index suite will add value.

Branded as the first “Highly liquid, investable real estate indices for the ETF” market, the index series includes a broad global index as well as regional indexes focused on Europe, Asia Pacific, the Americas and EMEA (Europe Middle East and Africa). The liquidity claim is based on the fund’s aggressive liquidity screen, which requires that a stock trade more than $3 million a day.

The index series has other wrinkles that make it interesting as well.

First of all, the broad 100 REIT index, in the name of being a truly global benchmark, has predetermined allocations to the regions of the world that it covers. Forty names come from the Americas; 30 from the Asia-Pacific region and 30 from the EMEA region.

Furthermore, the indexes focus on property investment firms as opposed to property development firms. This makes them a “purer” play on property, and also decreases the amount of exposure they have to emerging markets.

After all, the developing economies of the world are less developed by their very nature and, as a result, the large property firms in these countries generate much more revenue developing property than they do managing or maintaining it.

It’s perhaps the regional indexes of the Thomson Reuters series that are the most interesting.

I saw that because only one Europe-focused real estate ETF, the iShares FTSE EPRA/NAREIT Developed Europe Index Fund (NasdaqGM: IFEU), currently exist. Also, the only Asian real estate ETF on the market is the Guggenheim China Real Estate ETF (NYSEArca: TAO) and, as its name suggests, it only focuses on Chinese real estate.

It remains to be seen just how different the Americas index will be from the laundry list of U.S.-focused real estate ETFs.



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