S&P Dow Jones unveils equal weight and core US REIT indices

Jan 20th, 2013 | By | Category: ETF and Index News

S&P Dow Jones Indices, a leading provider of financial market indices, has launched two new indices over the past month tracking the performance of US real estate investment trusts (REITs).

S&P Dow Jones unveils equal weight and core US REIT indices

S&P Dow Jones has launched two new indices tracking REITs.

The indices, which have been rolled out under the group’s Dow Jones brand, are the Dow Jones US Select Equal Weight REIT Index and the Dow Jones Townsend Core US REIT Index.

The launch of these indices represents an expansion of the widely recognised Dow Jones Real Estate index family and, according to Michael Orzano, associate director of global equity indices at S&P Dow Jones, “is indicative of the investment community’s growing interest in REITs.”

Lately, investors have become increasingly attracted to REITs owing to the high and regular income they typically offer and property’s status as a real asset and likely beneficiary of the loose monetary policies that currently pervade.

Dow Jones US Select Equal Weight REIT Index

The Dow Jones US Select Equal Weight REIT Index, a subset of the Dow Jones US Select Real Estate Securities Index, is designed to serve as a proxy for direct real estate investment by measuring the performance of publicly traded REITs and REIT-like securities.

Index constituents must be both an equity owner and operator of commercial and/or residential real estate and at least 75% of the company’s total revenue must be derived from the ownership and operation of real estate assets. Businesses that are classified as Specialty under the REIT/RESI Industry Classification Hierarchy (such as net-lease REITs, timber REITs, railroad REITs, tower REITs, etc) and hybrid REITs are excluded.

The equal weighting scheme of the index alters the investment characteristics of the portfolio by reducing the impact of the largest companies and increasing the impact from the smaller companies. “Equal-weighting is a logical product extension as market participants’ attitudes towards REITs mature and they begin to seek more nuanced products in the asset class,” said Orzano.

The index comes almost three years after the Dow Jones Canada Select Equal Weight REIT Index was launched. This index has subsequently become the benchmark for the Toronto-listed BMO Equal Weight REITs Index ETF (ZRE), the only equal weight REIT ETF currently to exist. The conventionally weighted Dow Jones US Select REIT Index is available in ETF format via the NYSE-listed SPDR Dow Jones REIT ETF (RWR).

UK and European investors looking to access US REITs should consider the iShares FTSE EPRA/NAREIT US Property Yield ETF (IUSP), which is listed across Europe’s main exchanges.

Dow Jones Townsend Core US REIT Index

The Dow Jones Townsend Core US REIT Index has been designed in collaboration with the Townsend Group, an international real estate advisory and investment consultancy. The index aims to provide risk and return characteristics typical of direct core real estate investments through a basket of liquid publicly-traded REITs.

“The Dow Jones Townsend Core US REIT Index is designed to serve as an investable proxy for privately-held core real estate investments,” said Orzano. “The index fulfils a need in the market for a representative measure of the characteristics of core property investments, constructed using liquid, publicly-traded REITs.”

Chris Lennon, Portfolio Manager at the Townsend Group, added: “We believe that this index provides market participants with additional tools which can be used to better manage their existing portfolios.”

Index constituents are members of the Dow Jones US Select REIT Index. The property types eligible for inclusion are limited to companies involved in activities that are focused on longer-term rent generation. Property types that tend to include shorter lease-term-focused REITs, such as factory outlets, hotels, manufactured homes, mixed industrial/office and suburban office are excluded.

A capping scheme is employed to enhance diversification and limit single stock concentration.

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