Wanna buy-to-let? How about buying 60 real estate companies?
In this blog I’ll introduce an interesting ETF managed by State Street Global Advisors Limited which aims to track the performance of listed real estate vehicles in Europe.
The ETF does not hold any positions in companies that are from the U.K.
The ‚SPDR® FTSE EPRA Europe ex UK Real Estate UCITS ETF‘ (ISIN IE00BSJCQV56) tracks the performance of listed real estate companies („REOCs“) and listed real estate investment trusts („REITs“) operating in Europe (but not in the U.K.). The companies are predominantly active in the ownership, disposal and development of (mainly) income-producing real estate.
The fund holds around 60 positions and is relatively diversified in terms of its sector breakdown. The largest sector is residential with approx. 36% weight, retail accounts for around 10% of the portfolio. In terms of country breakdown the fund is clearly geared towards Germany which accounts for around 40% of the portfolio.
So why do I find this ETF interesting?
Like all ETFs the main advantages of this specific ETF – at first glance – arise from a) diversification, b) cost-efficiency and c) tradeability.
The ETF is diversified enough to wheather the upcoming challenges linked to COVID-19. It is also somewhat geared towards the residential sector. I believe that the residential sector will get through the COVID-19 crisis far better than any other sector in real estate. Residential rents will be very resilient compared to other assets‘ income streams and that will allow companies that hold residential assets to pay recurring dividends. I also believe that the recent legislative turmoil regarding housing and regulation is largely priced into the share prices of residential companies, especially in Germany.
The ETF’s total expense ratio (TER) amounts to 0.30% p.a. which is a mere fraction of what most open-ended real estate investment funds will charge or any direct investment in real estate will cost you.
But the main attraction of the ETF arises from the index’s dividend yield of close to but slightly below 5% p.a. (as of February 29, 2020). Going forward it is expected that listed real estate companies will show a much larger resilience in terms of earings revisions than general equity, as EPRA – the European Public Real Estate Association – has most recently pointed out. The dividends paid will be accumulated, by the way.
One of the biggest short-term advantages of the ETF is that it will avoid any frictions that may or may not occur when the U.K. will sail alone into unchartered waters after Brexit.
So are there no (downside) risks?
Well, there’s of course plenty these days and it would take another blog to list them all up. But since this is a conviction call and since I hold a position in the ETF mentioned herein, I’d downplay them anyway.
If you’ve missed out on most of the best buying opportunities in capital markets over the past decade – like many of my generation did – this may be the right time to start thinking about building up positions in smart investments with your own pension in mind. I truly believe this ETF is suitable for this purpose.