Real estate as an asset class has been favored for its low correlation with traditional stock and bond investments and ability to generate current income, as these trusts must distribute at least 90% of their income to investors, according to VettaFi.
There are only four actively managed real estate ETFs available to investors as of September 16: the ALPS Active REIT ETF (REIT), the Avantis Real Estate ETF (AVRE), the Cambria Global Real Estate ETF (BLDG), and the Invesco Active U.S. Real Estate Fund (PSR).
ALPS’ REIT comprises common equity securities of U.S. REITs, but may also include common equity of U.S. real estate operating companies (not structured as REITs), preferred equity of U.S. REITs and real estate operating companies, as well as cash and cash equivalents.
In selecting its constituents, the REIT’s proprietary methodology takes into account the intrinsic value of the underlying properties held by REITs as well as the corresponding intrinsic value of the REITs in which the fund seeks to invest, according to VettaFi.
AVRE invests in real estate stocks globally that are expected to have higher returns or better risk characteristics. The fund holds real estate companies stretching across a variety of property sectors, including REITs and REIT-like entities, located in countries included in its benchmark index, the S&P Global REIT Index, which currently includes the U.S., Japan, Australia, the U.K, and Singapore, among others.
BLDG provides income and capital appreciation by investing in a global basket of real estate securities including REITs and real estate management and development firms. The portfolio allocates 40% of its assets in equities listed outside of the U.S. and targets a total of 50–100 securities with equal weightings. The selection process uses Cambria’s multi-factor algorithm, which includes value, quality, and momentum. Value metrics include price-to-sales (P/S) ratio, price-to-earnings (P/E) ratio, funds from operations (FFO), dividend yield, and enterprise multiple (EV/EBITDA), quality metrics involve accruals or debt/asset ratios, and momentum uses the stock-price momentum metrics or the trailing (preceding) 12-month total returns, according to VettaFi.
PSR offers exposure to real estate investment trusts within the U.S. equity market, an asset class that has been recently overlooked by many investors. PSR structures and selects its investments primarily from a universe of securities that are included within the FTSE NAREIT All Equity REITs Index. The selection methodology uses quantitative and statistical metrics to identify attractively priced securities and manage risk.
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