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
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
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.
After all, the U.S. real estate market is the world's largest
and most liquid, and the U.S. is the main focal point of the
Thomson Reuters index series. As it stands, all of the REITs in the
Americas portfolio come from the U.S., although that could change
The future inclusion of Mexican and Canadian REITs is no
guarantee, but it will certainly add different exposure to the
current lineup of real estate ETFs should an issuer choose to use
the Thomson Reuters index.
The Asia-Pacific piece piques my interest most. The index
should, in theory, provide blended exposure to a mix of developed
and emerging markets that investors may crave.
In a perfect world, REITs in Singapore, Australia and Japan
would combine with Chinese and Indian REITs to give investors
exposure to the region's property market in a way that isn't yet
Compare that potential with Guggenheim's TAO, which only offers
exposure to China, and it's clear the opportunity is there-if not
The problem is, thanks to the property investment mandate of the
index series, the portfolio ends up being dominated by Japan and
Australia. Hong Kong makes up nearly 23 percent of the index, but
much of that property is located in Hong Kong, not mainland China.
Singapore, another developed market, represents nearly 7 percent of
The EMEA portfolio highlights this problem to a more drastic
degree. This index, in the absence of country caps, is dominated by
huge European REITs. Only two of the index's 30 holdings, which are
just 5.81 percent of the index, are in South Africa, and there's no
exposure to the Middle East.
As with the Asia-Pacific region, this may change over time as
the property markets in the two developing regions mature. But, for
now, it's a Europe-centric index.
So while the news Thomson Reuters/Global Property Research
global real estate indexes represent a real improvement over
current offerings, they are still bound by the shackles of poor
liquidity and choice in the emerging world. The intention is there,
but the market is as of yet incapable of providing the means to
effect a better strategy.
Would investors like to have the option of investing in emerging
markets real estate? I'm sure they would. The problem is the
developing world is busy trying to emerge.
Until that day comes, at least Thomson Reuters is trying to fill
in the gaps.
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