Demand is growing for real estate ETFs

This article is part of
Investing in Property - May 2015

Graham Porter, head of UK property research at Aberdeen Asset Management, says: “In the UK, attempting a passive strategy is counterproductive, if not impossible, because it often means stock selection is approached less rigorously. Even an indirect strategy cannot fully replicate market performance, especially when leverage is involved, because real estate is a heterogeneous asset class – each asset is unique.

“Performance is derived at the asset level, through diligent stock picking and specialist asset management skills that realise an asset’s potential.”

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When making the choice of whether to go active or passive, it seems the key issues to consider are liquidity, costs and whether you want synthetic replication or real bricks-and-mortar assets.

Michael Mohr, head of exchange-traded product development, EMEA, at Deutsche Asset & Wealth Management, adds: “Funds, and particularly ETFs, solve that liquidity issue. Funds are also easy to invest in, while the buying and selling of physical property is heavy on transaction costs, and on time and effort.”

But he points out: “Property ETFs invest in Reits. When you invest in a property ETF, the exposure you get is different to holding physical property as a buy-to-let investor would. The exposure is to a diversified portfolio of listed commercial property companies, and the performance of those will have some correlation with the broader equity market.”

Nyree Stewart is features editor at Investment Adviser