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Adam Patti, CEO of IndexIQ

IndexIQ launches the first ETF focused on small-cap US real estate (ROOF)

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IndexIQ has launched the IQ US Real Estate Small Cap ETF (Ticker: ROOF) on the NYSE Arca platform.

ROOF, a unique new ETF designed to be income producing, is the first Exchange-Traded Fund (ETF) dedicated to providing access to the small-cap US real estate sector and will include exposure to a wide variety of small-cap Real Estate Investment Trusts (REITs), including Mortgage REITs, Retail REITs, and Office REITs which made up 20.73 per cent, 17.97 per cent, and 17.68 per cent, respectively, of the fund’s underlying index as of May 31, 2011. Hotel, Diversified, Specialised (including medical, warehousing & self-storage) and Residential REITs will also be represented as well.

ROOF seeks to replicate, before fees and expenses, the performance of the IQ US Real Estate Small Cap Index (IQSMRES), a float-adjusted market cap-weighted index that is intended to track the overall performance of small capitalization US real estate companies. ROOF is intended to provide pure-play exposure to this sector either as a standalone vehicle or in combination with large-cap US real estate ETF offerings to create a broad-based portfolio.

“Performance among both small- and large-cap REITs took a big hit at the start of the financial crisis in 2007, but since 2009, REITs have seen a performance resurgence, with small-cap offerings far outpacing the performance of their large-cap counterparts,” says Adam Patti, CEO of IndexIQ. “In today’s environment, investors are hungry for income producing assets. With ROOF, ETF investors now have the potential to capture a robust new income stream and significant capital appreciation by isolating small cap US real estate exposure; and they can do this in a transparent, liquid, tax efficient way.

"Investors can use ROOF as a complement to one of the large-cap REIT ETFs in the market given the lack of portfolio overlap, or as a standalone allocation in lieu of large-cap exposure given the diversification benefits of small-caps, the higher yield, and the potential for greater capital appreciation in the future, which is typical when comparing small caps to large caps in most sectors. Additionally, as REITs often look to acquisitions for growth, these small cap REITs are well positioned to become acquisition targets for the large REITs.”

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