Inside The New REIT Select Sector SPDR ETF

State Street Global Advisors (“SSGA”) has added a new member to its well known suite of SPDR Select Sector ETFs and this time it’s related to real estate investment trusts or REITs based in the U.S. Before this, the asset manager has mostly offered international REIT ETFs, two based on Dow Jones indexes and one on an MSCI index. Its U.S. based REIT ETF so far only includes SPDR Dow Jones REIT ETF (RWR – ETF report) (read: Worried About Looming Rate Hike? Try this Ex-US REIT ETF).

Since its launch in 1998, SSGA’s SPDR sector suite has gathered over $84 billion in assets. The suite boasts very low fees as the asset manager has been able to cut its expenses over time “as more and more institutional and now individual investors have incorporated Sector SPDRs into their investment strategies,” said Dan Dolan, Director – Wealth Management Strategies, Select Sector SPDR Trust. 

The new Real Estate Select Sector SPDR fund, trading under the symbol (XLRE – ETF report), has been launched on October 7 keeping in mind the revisions to the Global Industry Classification Standard (GICS) announced by S&P Dow Jones Indices. The revisions will be implemented in August 2016 and it will set new rules of indexing and classification of firms included in the indexing.
 
Let’s delve a little deeper into this newly launched ETF (see all Real Estate ETFs here).
 
XLRE in Details
 
XLRE tracks the performance of the Real Estate Select Sector Index, which includes securities of companies from real estate management, development and REITs, excluding mortgage REITs. The ETF comprises 26 stocks with top holdings including Simon Property Group Inc. (SPG – Analyst Report), American Tower Corporation (AMT – Analyst Report) and Public Storage (PSA – Analyst Report), having shares of 12.69%, 8.32% and 6.75%, respectively. The fund is highly concentrated in its top 10 holdings, which account for 60.85% of the assets.
 
As far as sector allocation is concerned, specialized REITs, retail REITs and residential REITs hold the top three spots in the fund with allocations of 30.15%, 23.16% and 15.34%, respectively.
 
The fund charges 14 bps in fees from investors per year. Its underlying index has a dividend yield of 3.37% (read: A Comprehensive Guide to REIT ETFs).
 
How Does it Fit in a Portfolio?
 
After the weak September U.S. job data, the most recent inflation data from China and retail sales and producer prices data from the U.S. delayed the prospect of an interest rate hike by the Fed. This means that REITs will continue to draw leverage from the near zero interest rate in nearly a decade for refinancing their debts.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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