INVESTORS FLOOD BACK TO PROPERTY
NIZAM HAMID
HEAD OF SALES STRATEGY,
iSHARES EUROPE
REAL estate has suffered badly during the financial crisis and the very thought of sub-prime was enough to turn even the steeliest investors away from investing in property. But real estate is now a steadier environment and its attractiveness has been helped by its low correlations to other asset classes.
This greater attraction has been reflected in the interest we have seen from clients in property Exchange Traded Funds (ETFs). In the three months to October, the STOXX real estate sector was the best performing sector, rising by 16.9 per cent, and we experienced increased inflows into our iShares real estate ETFs. Looking at the market as a whole there was generally strong buying interest and positive money flows into the underlying equities of around €19.25bn. But while there have been strong flows into both the European and global property ETFs, investors also have the ability to use dedicated ETFs in US and Asian real estate allowing them to tailor their exposure to specific regions.
Using ETFs to gain exposure to the property market has proved popular because in this sector there are substantial single stock specific risks. ETFs give you broad exposure to both real estate and real estate investment trusts (REITs). Investors are looking for high yield and capital gains and in terms of the dividend yield, the global real estate index currently has a return of almost 5.7 per cent compared to 2.7 per cent for the MSCI World.
Equally, physical property funds are difficult for investors to enter and exit because of their lower liquidity whereas property ETFs are more liquid. They are traded on a number of exchanges, and can be bought and sold when you want with both visible pricing and high levels of transparency.
However, it is noteworthy that the gradual asset flows into real estate ETFs that we have seen of late is a sign of generally long term investors who will use property ETFs to make a cyclical allocation in their portfolios rather than taking a short term trading focus.