First Trust Advisors, the Illinois based sixth-largest US issuer of exchange-traded funds, expanded its lineup of actively-managed funds recently by offering a different spin on the traditional real estate ETF.
The First Trust Heitman Global Prime Real Estate ETF (PRME) aims to provide targeted exposure to investors in American and international prime real estate securities by investing in the equities of publicly-traded companies that own top tier, prime properties in the world’s leading cities.
The actively managed fund seeks out only the finest properties in high-value markets and seeks to achieve its investment objective by investing at least 80 percent of its net assets (including borrowings) in securities issued by real estate investment trusts (REITs), real estate operating companies (REOCs) and common stocks or depositary receipts of companies primarily engaged in the real estate industry.
Real estate development and management companies generally derive at least 50 percent of their revenue from real estate and have at least 50 percent of their assets invested in real estate that includes ownership, management, construction or sale of real estate.
The portfolio constituent companies must have at least 75 percent of their assets located in so-called prime cities – those that are recognized as “global gateway” markets and benefit from physical and/or financial trade, as determined by the fund’s sub-adviser Heitman.
The fund screens the real estate industry for size and liquidity based on free-float market capitalization and daily trading volumes, respectively. The portfolio holdings must have more than 75 percent of their gross value in prime markets and more than 50 percent of their assets under management in prime assets. PRME does not directly invest in real estate.
The new fund is essentially a growth play betting on accelerated future global urbanization with the assumption currently valuable properties will continue to appreciate in value with the passage of time. Hence the issuer expects the portfolio to report relatively low cap rates; i.e. lower income. With no index to follow, the fund manager has the liberty to reconfigure the fund at any time.
The fund’s exposure is tilted toward the US (32.45 percent), followed by Japan (13.60 percent) and Australia (11.20 percent). PRME also faces concentration risk due to exposure in only one sector and non-diversification risk, potentially holding as few as 25 names.
Actively-managed PRME charges 0.95 percent annually, which is a lot more than most of its indexed peers.
Disclosure: No holdings