Investors have dozens of exchange-traded funds to consider when looking for exposure to real estate investment trusts. Most of these funds use traditional cap-weighted approaches, but a new real estate ETF emphasizes another factor: location.
Vident Financial introduced the U.S. Diversified Real Estate ETF PPTY on Tuesday. The new ETF follows the U.S. Diversified Real Estate Index. PPTY “uses data on the individual properties held by each company in the investment universe to build a portfolio diversified by location and property type. Leverage and governance factors are further included to reduce exposure to higher risk companies,” according to Vident Financial.
None of PPTY's holdings exceed weights of 3.5 percent and the rookie ETF's top 10 holdings combine for just 26.2 percent of the fund's weight.
Lucrative Markets
Location matters with real estate investments, a theme PPTY delivers to investors. The new ETF also focuses on property and leverage, factors many traditional real estate ETFs gloss over.
“The factors that matter when investing in real estate are no secret,” said Fred Stoops, head of real estate investments at Vident. “Yet they’re ignored by the traditional cap-weighted approach, which today has over 95% of REIT ETF assets. With the launch of PPTY, we’re looking to give investors access to a better solution: a rules-based fund that delivers diversified exposure to U.S. real estate.”
The top 10 markets featured in PPTY, which combine for 55.6 percent of the ETF's weight, include New York, Los Angeles and Washington, D.C. Other lucrative and fast-growing markets featured in PPTY include San Francisco, San Jose, Boston and Houston.
PPTY allocates 19 percent of its weight to residential REITs, 17.5 percent to office REITs, 14.5 percent to industrial REITs and a combined 22 percent to retail and hotel REITs.
Other Factors
Leverage and corporate governance matter in PPTY's stock selection process.
“PPTY reduces allocations to companies with high debt in favor of firms with strong balance sheets,” according to Vident. “PPTY excludes companies with two governance risk factors—external management and a minority of their shares publicly listed.”
The new ETF charges 0.53 percent per year, or $53 on a $10,000 investment.
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