Discussions about real estate, both commercial and residential,
are part and parcel of ongoing debates to determine the future
direction of economies worldwide. Keeping things simple is TAO.
[caption id="attachment_70225" align="alignright" width="300"
caption="A rooftop garden stands out amongst the houses in Xiamen,
China"]
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In emerging markets there are great differences between real
estate markets from country to country. While some areas in China
have been overbuilt and are suffering the effects of vacant
commercial buildings and offices, other areas are still building
residential real estate to meet the demands of a surging middle
class.
Other emerging markets are in various stages of build up,
reflecting their place along the path to developed status.
There are not a whole lot of ways to gain exposure to emerging
markets real estate, either commercial or residential. In fact
there is only one ETF dedicated to emerging market real estate: the
Guggenheim China Real Estate ETF (
TAO
,
quote
).
TAO is designed to deliver:
"investment results that correspond generally to the
performance, before the Fund's fees and expenses, of an equity
index called the AlphaShares China Real Estate Index". The index is
"designed to measure and monitor the performance of publicly issued
common equity securities of publicly-traded companies and real
estate investment trusts ("REITs") which are open to foreign
ownership and derive a majority of their revenues from real estate
development, management and/or ownership of property in China or
the Special Administrative Regions of China such as Hong Kong and
Macau".
TAO is primarily invested in Hong Kong (80.04%) but also
mainland China (18.67%) and Singapore (1.29%). The ETF has 45
holdings with the top 10 positions accounting for 50% of the funds
assets. Those holdings are as follows:
Sino Land Co. Ltd. 5.41 %
Wharf Holdings Ltd. 5.25 %
Hong Kong Land Holdings Ltd. 5.12 %
China Overseas Land & Inv 5.12 %
Henderson Land Development 5.11 %
Cheung Kong Holdings Ltd. 4.95 %
Hang Lung Properties Ltd. 4.78 %
The Link Reit 4.74 %
New World Development Ltd. 4.49 %
Hang Lung Group Ltd. 4.38 %
Fund expenses are capped at .65% and the ETF has a current
dividend yield of 1.02%. Volume is very light with a 90 day average
volume just over 11,000 shares per day. However TAO has been doing
quite well this year. The share price is up from about $15 per
share at the start of 2012 to a recently traded $19.00 per share, a
year to date return of nearly 27%.
On the year to date chart the ETF looks like it may be topping.
Though the range appears to be narrowing, a short term pullback may
be in the offing. Overall TAO is up from the lows of 2009 but has
struggled, trading essentially sideways for the last few years in a
very wide range from around $14 per share to upwards of $21 per
share. The long range chart shares some characteristics with the
year to date chart, but it is a little more promising, allowing for
the possibility of more upside.
The long range outlook for real estate in China is still good
despite the ongoing slowdown. Demand will increase over time
although expect the volatility to continue. I would not commit any
money to TAO however -- unless the money invested can be parked and
held a very long time.