Vident Financial, LLC has launched the PPTY – US Diversified Real Estate ETF, a multi-factor alternative to traditional market cap-weighted real estate funds.
“If you ask for the three most important factors when investing in real estate, you’ll probably hear ‘location, location, location.’ To this we’d add property type and leverage,” says Fred Stoops, head of real estate investments at Vident.
“The factors that matter when investing in real estate are no secret,” Stoops continued. “Yet they’re ignored by the traditional cap-weighted approach, which today has over 95 per cent 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 US real estate.”
PPTY seeks to track, before fees and expenses, the performance of the US Diversified Real Estate Index (PPTYX). The portfolio construction process 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.
The firm writes that PPTY’s stable geographic targets deliver consistent diversification within each property type. It uses fixed allocations to each property type to ensure appropriate diversification. The largest allocations are to core property types such as residential, office, and industrial due to their strong track record of delivering the stable income, inflation protection and growth investors seek in real estate.
PPTY is designed to reduce allocations to companies with high debt in favour of firms with strong balance sheets and excludes companies with two governance risk factors—external management and a minority of their shares publicly listed.
The firm writes that this rules-based approach uses these factors to provide the consistent, diversified real estate exposure investors seek.
Vince Birley, chief executive officer at Vident, adds: “With all our ETFs, we seek to identify specific factors utilising our principle-based framework that can add value for investors, and we’ve done that again with PPTY. We’re delighted to introduce this innovative new fund to the marketplace, the fifth in our growing family of exchange traded funds.”
PPTY has a management fee of 0.53 per cent, and joins a line-up of Vident Financial ETFs that also includes the Vident International Equity Fund (VIDI), Vident Core US Equity Fund (VUSE), Vident Core US Bond Strategy (VBND), and FLAG-Forensic Accounting Long-Short ETF (FLAG). As of March 20, 2018, Vident’s ETF family had a total of approximately USD1.94 billion in assets under management.