With invesco’s newly released PowerShares S&P/TSX REIT Income Index, there are now five REIT-focused ETFs for Canadian investors to choose from. But rather than being a simple copycat, it provides an additional screen that places it squarely in strategic-beta territory.
“The index that the PowerShares ETF is based on holds the same 15 securities as… [BlackRock’s] $1.3-billion iShares S&P/TSX Capped REIT IndexXRE,” Morningstar Canada said in a recent article.
“But, as indicated by its name, PowerShares S&P/TSX REIT Income Index has a greater emphasis on regular monthly distributions than is already the case in this income-oriented specialty category.”
Aside from considering the market capitalization of REITs, the PowerShares REIT ETF takes into account the volatility of monthly income distributions they have issued over a three-year period. In contrast, BlackRock’s REIT ETF doesn’t use such a screen.
The Invesco and BlackRock REIT ETFs both consider market capitalization in selecting holdings, with each imposing a cap on any particular security. The PowerShares ETF uses a 10% cap, which theoretically gives it much more diversification potential than the iShares ETF, which has a 25% holding cap. But the actual gap is smaller as the top holding in the iShares ETF, Riocan REIT, currently accounts for only 17.2%.
The PowerShares ETF has a management fee of 0.45%, 10 basis points less than that of its iShares counterpart. “[M]ost of that cost advantage will be preserved once it begins to report an MER,” the article said. The lowest-expense REIT ETF for Canadians is reportedly the $152-million Vanguard FTSE Canadian Capped REIT Index, a market-cap-weighted fund with a management fee of 0.35% and an MER of 0.38%.
On the other end of the cost spectrum is the First Asset
Canadian REIT ETF, a $277-million fund whose management fee is 0.75%; its MER is 0.61%. The fund’s fully active strategy allows it to invest in non-Canadian REITs and other securities related to real estate. It has reportedly returned 8.2% in the 10 years ending Aug. 31, compared to the iShares ETF’s 6% return over the same period.
“PowerShares S&P/TSX REIT Income Index, with its strategic-beta mandate, won't have anywhere the same flexibility as First Asset,” the article said. “What it does bring is a middle ground for investors to choose from between passive market-cap-based investing and fully active securities selection.”
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