Jailhouse REIT

USA

REIT ETF without jails or casinos

White-labeller Exchange Traded Concepts and Georgia-based WeatherStorm Capital are teaming up to list a property ETF. The Weatherstorm Real Estate ETF (PPTY) will track an in-house index of companies that make more than 85% of their income from real estate, which one imagines will overwhelmingly be REITs. 

 

Companies that qualify are put in nine categories: office, residential, data centre, industrial, hotel, self-storage, retail, health care and diversified. The weightings each category receives are not specified but they will be predetermined, the prospectus indicates.

 

Companies that make their money from other types of property – including infrastructure, casinos, billboards and prisons – are excluded from the index.

 

Companies are then chosen and weighted for geographic diversification, as is common for property ETFs. The index also controls leverage, such that companies with above-average leverage get their weightings cut.

 

Analysis – removing prisons and controlling leverage are good ideas

REIT ETFs are very popular in English speaking countries. Vanguard’s US REIT ETF (VNQ) has $30bn under management while charging 12 basis points – making it one of the biggest revenue generating ETFs in the world. But while there are assets to win, the competition is fierce. So what makes PPTY different?

 

The removal of prison and gambling REITs is one distinction – and it’s a good idea. These exclusions will endear PPTY to ESG investors. Prison REITs have also mostly failed to perform, even after receiving a booster from Trump’s election. The leverage control is also a nice feature and suggests the funds’s advisers have learned a lesson from the 2008 financial crisis.

 

The removal of infrastructure and billboard REITs is puzzling, however. Maybe it has to do with a broader scepticism on alternative REITs on the part of the adviser (WeatherStorm).

 

Nationwide goes for diversified EM with ESG

Insurance giant Nationwide is listing a new EM ETF as part of its new family of ETFs. The Nationwide Maximum Diversification Emerging Markets Core Equity ETF (MXDE) will track an index assembled by Paris-based consultancy Tobam.

The index starts with all emerging markets companies with more than $750 million in market cap that meet a minimum liquidity threshold. Companies are then screened based on Tobam’s SRI “exclusion blacklist”, the prospectus says. The blacklist includes companies that are in weapons, have bad human rights records, make tobacco, produce coal – as well as other screens.  

 

Companies that survive the blacklisting are then screened for volatility and correlation to each other and weighted to lower the overall volatility of the index while maintaining its diversification.