Hang Seng Indexes Construct REIT Benchmark
Source: http://www.indexuniverse.com/sections/newsinfocus/4758-hang-seng-indexes-construct-reit-benchmark.html?Itemid=3&utm_source=straightstocks.com&utm_medium=sidebar&utm_campaign=rssPosted on Wednesday, October 29th, 2008 | In Exchange Traded Funds
Hong Kong is considered one of the most mature, if also volatile, real estate markets in the world.
Making bets on the performance of the real estate investment trust market in Hong Kong may soon become easier.
The Hang Seng Indexes Company has launched a REIT index covering real estate investment trusts listed in Hong Kong. The Hang Seng REIT Index will serve as the basis for index products, including funds and derivatives, says the index provider, as well as a benchmark for investors in the REIT asset class.
Hang Seng Indexes continues to move into more investment niches popular with ETF investors.
Earlier this year, it launched leveraged and short indexes on the Hang Seng Index and Hang Seng China Enterprises Index (see story here.)
While international real estate ETFs have become more prevalent, the focus has been on European real estate to a large extent. Ten of the 12 real estate ETFs are broad international or global funds. There is no ETF offered in the U.S. tracking the Hong Kong REIT niche, and the local brand name of the index provider could make it an interesting product.
Claymore Securities offers the Claymore/AlphaShares China Real Estate ETF (NYSEArca: TAO), based on AlphaShares own China Real Estate Index. TAO is 93% weighted to Hong Kong issues, but almost all of its holdings are non-REIT.
The only other Asia-themed REIT ETF is the Tokyo Stock Exchange REIT Index Fund (NYSEArca: JRE) from Northern Trust’s NETS family of ETFs. There are two Japanese REIT ETFs also available locally in Japan and launched by rival asset managers, Nomura Asset Management and Nikko Asset Management (see story here.)
Japan is a much larger REIT market than Hong Kong, representing 10% of the global REIT marketplace. Hong Kong was the 14-largest real estate market in the world (1.2%), according to a comprehensive study completed for the Journal of Real Estate Portfolio Management in 2007.
However, Hong Kong only began listing REITs in 2005. This shows in a comparison of the total number of holdings in TAO and the Japanese REIT ETFs, versus the Hang Seng REIT index. While the TAO, JRE and the local Japanese REIT funds might seem concentrated at approximately 40-50 holdings, the Hang Seng REIT Index is more like a poker hand than investment sector, with seven total holdings.
The holdings are:
- GZI REIT: 14.78%
- Sunlight REIT: 15.42%
- RREEF CCT REIT: 12.54%
- Prosperity REIT: 11.42%
- Link REIT: 20.25%
- Regal REIT: 11.55%
- Champion REIT: 14.05%
TAO has 50 holdings, but only two of the REITs in the new Hang Seng index, Link REIT and Champion REIT. Notably, though, LINK REIT is TAO’s largest holding, at 8.06%, while Champion REIT only represents 1.08% of TAO, according to company data as of yesterday. TAO is down 53% year-to-date, through Sept. 30, according to the Claymore web site. TAO is down 31% in the past three months, and a shade under 40% in the past six months.
Kevin Carter, CEO of AlphaShares, said while seven companies can be pretty thin as far as index construction, it does represent the existing Hong Kong REIT market, and that market will continue to grow.
“Having any index for benchmarking purposes is a good thing and you have to start somewhere, and the market will have more and more REITs,” Carter said, adding even the mainland is talking now about adding a REIT structure.
TAO is much broader in focus because it includes real estate management and development companies in Mainland China that have long-term leases to develop land and sell it for the government. However, these firms do not enjoy the tax advantages of REITs.
Overall, Hong Kong is considered one of the most mature, if also volatile, real estate markets in the world, and also one of the globe’s most transparent markets.
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