US-based Hartford Funds has launched the industry’s first exchange-traded fund to apply a multi-factor smart beta weighting strategy to the real estate investment trusts (REITs). The NYSE-listed Lattice Real Estate Strategy ETF (NYSE: RORE) selects and weights US REITs with the strongest quality, momentum and value characteristics.
The Lattice Real Estate Strategy ETF (NYSE: RORE) selects US REITs based on strong quality, value and momentum characteristics.
“The launch of RORE is a natural extension of Hartford Funds’ strategic beta ETF platform,” said Darek Wojnar, Head of Exchange-Traded Funds at Hartford Funds.
Hartford Funds acquired smart beta ETF issuer Lattice Strategies in August 2016.
“The strategy focuses exclusively on REITs and may be a compelling solution for investors interested in taking advantage of the growing opportunities in the real estate sector,” added Wojnar.
The ETF tracks the proprietary Lattice Risk-Optimized Real Estate Strategy Index. The underlying methodology of this index selects REITs exhibiting a favourable combination of factor characteristics, including quality, momentum, and value.
Bi-annual reconstitutions of the index occur in March and September.
Seeking to diversify across property types, the index has approximately a 20% allocation to both retail REITs and diversified REITs, while hotel REITs, residential REITs, office REITs and speciality REITs each hold slightly over 10%.
With 56 constituents, the index is primarily exposed to mid-cap companies ($2bn-$10bn) with just over a two-third allocation, while small-cap exposure (less than $2bn) makes up a quarter of the holdings.
As of 30 September 2016 the index is up 19.0% year-to-date.
REIT ETFs have grown in popularity as a suitable solution for income-seeking investors due to their high dividend yields; by law US-based REITs are required to maintain dividend pay-out ratios in excess of 90%.
“Hartford Funds’ latest strategic beta ETF allows us to offer even broader options for building investment portfolios that reflects clients’ needs, risk tolerances and life goals,” said Vern Meyer, Chief Investment Officer of Hartford Funds. “Our expanded capabilities cater to investors interested in a mix of high-active share mutual funds and complementary strategic beta ETFs.”
The ETF has a total expense ratio (TER) OF 0.45%.
RORE joins four additional Lattice ETFs, all listed on the NYSE, including:
Lattice Emerging Markets Strategy ETF (ROAM)
Lattice Developed Markets (ex-US) Strategy ETF (RODM)
Lattice US Equity Strategy ETF (ROUS)
Lattice Global Small Cap Strategy ETF (ROGS)