Mortgage lending in recent times has also gained traction indicating higher real estate activities, data available from banks across the country indicate. Guggenheim, the Chicago-based eighth largest provider of US exchange-traded funds recently launched a real-estate product that would help investors to tap into the rising housing and construction industry.
The newly launched Guggenheim S&P 500 Equal Weight Real Estate ETF (EWRE) is an industry first in that it tracks a sub-sector that will come into existence in about a year from now.
The S&P 500 Equal Weight Real Estate Index, created less than three months ago, is the first index to be created after S&P and MSCI announced last year real estate would be separated from financial services sub-sector and would be the 11th standalone segment in the Global Industry Classification Standard (GICS).
S&P 500 currently has 10 sub-sectors that include consumer discretionary, consumer staples, financial services, energy, industrials, materials, utilities, technology and telecommunications. While new real-estate sub-sector officially comes into existence on August 16 next year, Guggenheim stole the show over competitors since EWRM would have a performance track record of about a year by August 2016.
While there are currently about 33 real-estate index funds in the market, most are market-cap weighted, including the segment leader Vanguard REIT ETF (VNQ). While Simon Property Group, the largest firm with a market capitalization of about $60 billion, dominates most other products, in EWRE it makes up just 1/26 of the fund’s holdings.
There are currently 26 stocks in the S&P 500 index that are included in the GICS real estate group. EWRE’s portfolio consists of real estate investment trusts (REITs) and real estate companies, but excludes mortgage REITs.
The equal-weighting strategy of the new fund can potentially lower risks compared to the more traditional market-cap weighted ETFs in that it reduces the bias toward the larger individual companies. Equal weighting also increases diversification and reduces concentration risk often associated with market-cap weighted funds.
Equity REITs, which are the primary constituents of EWRE, generally tend to pay consistent and above average dividends, according to Guggenheim.
EWRE has an annual expense ratio of 0.40 percent.
Disclosure: No holdings