Guggenheim looks to differentiate its real estate ETF as focus on the sector grows
Guggenheim's latest smart beta ETF provides exposure to real estate investment trusts. By equal weighting the underlying holdings, Guggenheim&rsquo;s ETF avoids larger companies dominating the portfolio and sets it apart from other real estate ETFs, which are weighted by market cap.
Guggenheim Investments is staking its claim to the S&P 500 Equal Weight Real Estate Index with a smart beta ETF that tracks the two-month-old sector benchmark.

The Guggenheim S&P 500 Equal Weight Real Estate ETF (EWRE), is the firm’s 15th equal-weighted ETF, and it is the first smart beta ETF focused on the broad-market real estate sector.

The ETF joins a relatively crowded marketplace that includes 33 other index funds providing exposure to real estate investment trusts, but it stands out by equal-weighting the underlying REIT holdings, as opposed to weighting based on market capitalization.

For example, the $26.1 billion Vanguard REIT ETF (VNQ) and other market-cap-weighted real estate ETFs are constructed based on company size. In this case, the $58.9 billion Simon Property Group (SPG), as the largest REIT, makes up about 8% of the index and, thus, the ETF’s holdings.

“I think the equal-weighting can be appealing because no company will dominate the portfolio,” said Todd Rosenbluth, director of mutual fund and ETF research at S&P Capital IQ.

“In this unique environment, it’s harder for an investor to know which types of REITs are going to do best,” he added. “And the equal-weighting approach treats all REITs the same.”

Even as real estate comes under a cloud of uncertainty as the Fed creeps toward its first interest-rate hike in nearly a decade, it is seen as a stable source of income and a portfolio diversifier, according to William Belden, Guggenheim’s managing director of product development.

“Real estate securities offer potentially attractive long-term total returns coming from both capital appreciation and higher-than-average income when compared to other equities,” he said. “Also, investing in real estate securities can be used as a hedge against inflation.”

The equal-weighted index on which the Guggenheim ETF is based is part of an increased focus on the real estate sector by S&P Dow Jones Indices, which announced in November it was breaking out real estate as an 11th sub-sector of the S&P 500 Index.

The new sector, which will separate real estate companies from where they currently reside in the financial sector, will officially debut sometime next summer.