Q: Was there a reason for there being no real estate exchange traded funds (ETFs) included (especially at an international level) in the recent Top 50 ETFs report?
Joe C
Taha Lokhandwala, personal finance writer replies: Real estate ETFs were not included as these invest in real estate companies rather than in bricks and mortar.
Recommending a real estate ETF would be a sector call rather than something an investor would hold for diversification, and they should only be bought if you’re really bullish on companies that build, manage or are involved in the real estate sector.
We didn’t include any sector-specific ETFs in the Top 50 this year (the closest being EQQQ in the US equities category which tilts towards technology companies). We have done in the past, and may do so again in the future, and whether to do so or not was one of the bigger topics discussed with the expert panel.
Some real estate companies are included in other ETFs. For example, the HSBC MSCI World UCITS ETF (HMWO) has a 3 per cent allocation to the sector.
The way we traditionally speak about real estate within a portfolio is for diversification away from equities and bonds, and in that case, real estate ETFs are not appropriate because they include significant equity risk. We would always recommend including real estate investment trusts or an open-ended physical property fund (if you can tolerate the liquidity constraints) for diversification.
