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First REIT Fund Focused On Japan Launches

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The Northern Trust exchange-traded funds family marketed as NETS has brought the industry's first Japanese real estate investment trust fund to market.

The NETS Tokyo Stock Exchange REIT Index Fund (NYSEArca: JRE) launched on Monday. "We regard this as an extension of our international focus, and in some ways a minor departure because of the real estate focus as opposed to a broad spectrum of equities," said Peter Ewing, head of Northern's ETF business.

The launch marks the 16th NETS on the market so far. The firm recently filed for six others that are still going through the regulatory process. (See related story).

The REITs fund indicates a new direction, or one could say, ancillary thrust in Northern's push into the ETF market. Its core ETF focus has been on single-country equity funds; funds, for example, tracking equity indexes in Japan, Hong Kong and many European countries.

Ewing says the two main drivers of the new Japanese REIT ETF are the asset manager's strong relationship with the Tokyo Stock Exchange (TSE) and the compelling size of the Japanese REIT market, which represents 10% of all global real estate investment opportunities.

The NETS family already offers an ETF based on the TSE's TOPIX Japanese equity index.

"Financial professionals have long recognized the importance of real estate in a well-balanced, risk-adjusted portfolio, and real estate as an asset class that helps to create that type of portfolio diversification," Ewing said.

The new Japanese REIT fund allows financial professionals to meet that same goal with a different economy and through a real estate market that comprises 10% of the global investment marketplace, he added.

Rock Bottom? 

The new launch comes at an interesting time for REIT funds and the Japanese market, in particular. The Japanese real estate market has been hard hit, but many in the market feel it may have hit rock bottom and now is the time for savvy investors to buy. To that point, many private equity players based in the U.S. have recently been targeting the Japanese real estate market.

What's more, recent data from Real Capital Analytics shows positive trends in Japanese real estate in terms of transaction levels compared with other global markets. Transactions in Japan have grown 11% in the first half of 2008, and Tokyo topped the list of office property sales, and Japan as a country only behind the U.S. in the office market with $12.6 billion in transactions.

Real Capital Analytics noted that Asia now accounts for a third of the global property acquisitions, doubling its market share in one year. Transactions in Japan grew 11 percent for the first half of 2008 compared to 2007, the report noted. Approximately $2.6 billion was sold in apartment properties by mid-year, 15% higher than the same period in 2007, and again placing Japan second behind the U.S., according to the Real Capital Analytics report.

NETS' Ewing stressed that the launch is not tied to any short-term market play. "We never try to time the market or say whether we think it has hit a bottom. If that is your view, then this fund is an opportunity to seek exposure, but we are not setting ourselves up for short-term assets."

What's more, Ewing downplayed any first-in advantage provided by the fund due to its unique nature.

ETFs that target new asset classes often gain an advantage in asset gathering, known as the first-mover effect, but Ewing said Northern Trust is not relying on that dynamic.

"This fund's creation is driven chiefly by the fact that we have a primary suite of funds for financial advisors with single-market equity exposure, and there always will be opportunities to complement those funds on an opportunistic basis. The TSE REIT Index Fund is the first instance of that complementary strategy," Ewing noted.

 

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