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iShares launches US real estate ETF

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BlackRock has launched the first exchange-traded fund (ETF) that is an effective substitute for physical real estate –  the iShares MSCI Target US Real Estate UCITS ETF.

Investors have traditionally accessed real estate through the private market or through listed real estate companies such as real estate investment trusts (REITs). This new fund is designed to achieve a risk and return profile that is similar to physical real estate while preserving the liquidity and ease of access of a REIT.
 
The underlying index is widely diversified, both across regions within the United States and across sectors. It follows a three step process. To reduce volatility, the index gives higher weightings to less volatile stocks and it is deleveraged to manage the effect of the leverage REITs typically employ. The index is also combined with short-term, inflation-linked government bonds to provide inflation protection.
 
The fund is physically replicating and has a total expense ratio of 0.4%.
 
Tom Fekete, Head of Product Development for iShares in EMEA, says: “Real estate is one of the most popular alternative asset classes for European investors but initial charges and transaction costs can be high. Our new fund is designed to provide simple, cost-effective and liquid access to listed real estate with a risk and return profile closer to that of physical real estate.
 
“We believe it will appeal to a range of professional investors as an additional tool for accessing real estate and diversifying their portfolio, and to real estate managers as a short-term alternative to holding cash. There is nothing like this on the market today and we see potential to expand the range to other regional property markets.”
 
Deborah Yang, Head of the MSCI Index Business in EMEA commented:
 
“The new index is comprised of liquid listed real estate and aims to replicate the risk and return profile of investment in bricks-and-mortar real estate. The index is designed for use by both smaller asset owners which are not large enough to build a diversified direct real estate portfolio and larger investors aiming to quickly build or reduce exposure to the underlying asset class.”

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