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New emerging market real estate ETF brings exposure to China, South Africa

September 29, 2014 in Real Estate Law

By Ashley Lau

NEW YORK, Sept 29 (Reuters) – A new exchange-traded fund tracking the real estate industry in emerging market countries debuted on Monday, offering investors a novel entry into a growth sector that also carries risks from markets like China in the midst of downturn.

The Guggenheim Emerging Markets Real Estate ETF, launched by Guggenheim Investments, is the first to track securities specifically tied to real estate in emerging markets, via the AlphaShares Emerging Markets Real Estate Index.

The fund and its index are most heavily weighted to markets in China, Hong Kong and South Africa, which comprise almost half of the holdings of its index.

“Overall the whole theme is attractive, but in terms of right now, looking at the top-three country allocations, the fundamentals are not that strong,” said Patty Oey, a Chicago-based analyst with Morningstar.

The property market in China, for example, is heavily influenced by government regulation, meaning the market can heat up or cool down depending on government actions, Oey said, rather than being run on fundamentals. Hong Kong, which has a number of property companies with assets in China, reflects a similar story, she said, while South Africa, the third-largest country weighting, has seen a big rise in consumer debt over the past decade.

The ETF’s index includes a broad swath of publicly-traded real estate investments across some 18 different countries, though the performance of some of its top holdings is largely mixed year-to-date, reflecting individual company and country risk.

Two of its largest holdings, China Overseas Land Investment Ltd and China Resources Land, for example, are down about 6.9 percent and 14.6 percent year-to-date, respectively.

On the other hand, Mexico-based commercial and industrial real estate investment company Fibra Uno, its second biggest holding, is up about 5 percent year-to-date, and Philippines-based real estate developer Ayala Land Inc, its third-largest holding as of Friday, is up about 40 percent year-to-date.

Guggenheim pointed to growth trends in emerging markets including urbanization, rising consumerism from an expanding middle class and increasing foreign direct investment. Annual consumption in these countries is expected to reach $30 trillion by 2025, according to a McKinsey Co report.

AlphaShares, the index provider, launched the index earlier this month. The firm’s chief investment officer Burton Malkiel said the sector’s low correlation to U.S. equities may also allow investors to diversify their portfolios.

The fund, while more niche, is also pricier than many ETFs, with an annual management fee of 0.65 percent, or $65 for every $10,000 invested.

But compared to the mutual fund Alpine Emerging Markets Real Estate Fund, this first-of-its-kind ETF is available to a wider investor base at a cheaper price.

(Editing by Alden Bentley)

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Article source: http://finance.yahoo.com/news/emerging-market-real-estate-etf-180738272.html

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