S&P Eyes Global Property

January 25, 2007

The global property market is hot, and we don't mean the price of flats in London; S&P enters the indexing fray.

A few months ago, there was no easy way for investors to gain indexed access to the international property market. 

My, my, my, how time flies.

Back in July 2006, Northern Trust cracked open the market by launching the world's first index-based global real estate fund, with the ticker NGREX.  The fund charges 75 basis points in expenses.

 State Street Global Advisors (SSgA) followed suit, beating out WisdomTree Investments to launch the first international real estate exchange-traded fund (ETF), the SPDR Dow Jones Wilshire International Real Estate ETF (AMEX: RWX) .  Charging just 60 basis points in expenses, the fund has been a hit with investors, pulling in over $200 million in its first year on the market.

Now, the other indexers are falling in line. Standard and Poor's has launched a new Global Property index that seems custom-designed for the ETF marketplace.  The S&P Global Property 40 Index, which debuted January 24, tracks 40 large-cap real estate companies from across the global markets.

"This index, which follows the broad market acceptance of the S&P BRIC 40 index, is another example of Standard & Poor's commitment to bring tradability to less liquid asset classes," said Srikant Dash, Index Strategist at S&P.

The index is a subset of the broader S&P/Citigroup Global Property Index, which features more than 400 stocks from developed and emerging markets alike, as well as a broad-based World REIT index. But with a focused list of 40 names, the new index is more trader-friendly. S&P says that UBS is "the first bank" to license the new index, but something tells me it won't be the last.

The move towards housing and property values has been a defining trend at S&P over the past year, with the launch of these global property indexes and the S&P/Case-Shiller House Price Indices, as well as the planned launch of commercial real estate price indexes.

The funky (and somewhat frightening) thing about the growth of these global property markets is that they are all relatively concentrated, tracking more-or-less the same 50 or 100 stocks around the globe.  Asset allocation models talk about putting significant money into property markets - 5-10 percent is not uncommon - and you have to wonder if any of these trades will get crowded as time goes by. Without having absolute numbers, the high allocations appear to be larger than the representation of property shares in the global market.

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