BlackRock Goes Down The Property Route With Extension To ETF Suite

Editorial team

19 March 2015

BlackRock, the world’s largest listed asset manager, has launched an exchange traded fund targeting returns that it says mirror those from UK real estate.

The new ETF is called the iShares MSCI Target UK Real Estate UCITS ETF. It has a total expense ratio of 0.4 per cent.

The new exchange traded fund is the first product of its kind, BlackRock said, to offer exposure to UK real estate in a way that aims to “accurately reflect the characteristics of physical real estate while preserving the liquidity and ease of access of a REIT”. The launch follows that of the iShares MSCI Target US Real Estate UCITS ETF, which it issued in January this year, the firm said in a statement yesterday.

“Investors have to work even harder to find assets with the potential to deliver an attractive yield, and as part of this they are increasingly looking at property. Hamstrung by high barriers to entry, direct investment in real estate is not always a viable option, and this is particularly the case for those investors with a small amount of capital to invest,” Tom Fekete, head of product development for iShares in Europe, Middle East and Africa, said.

“We have so far seen strong interest from clients for our US REIT fund, and investors now have the ability to express views on two of the world’s major real estate markets,” Fekete continued.

The underlying index’s methodology will comprise three elements: reducing volatility by giving higher weightings to lower volatility stocks, using REITs’ balance sheets to calculate the average proportion of debt across the REITs portfolio, and allocating to inflation-linked government bonds to reduce leverage and provide inflation protection.

Exposure to property traditionally is gained through physical investment or by REITs (real estate investment trusts). BlackRock argues that while REITs overcome some of the challenges of investing in property, including high transaction costs and large initial investments, they do not closely replicate the behaviour of physical real estate.