PPTY Outperforming Well Known REIT ETFs

seekingalpha04-30

FuntapIntroduction I recently came across the Vident U.S. Diversified Real Estate ETF (NYSEARCA:PPTY). Besides the ETF being new to me, I never heard of the manager either. Add the low AUM, and ...

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Add the low AUM, and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4686817-ppty-outperforming-well-known-reit-etfs\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>PPTY Outperforming Well Known REIT ETFs</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nPPTY Outperforming Well Known REIT ETFs\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-30 14:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4686817-ppty-outperforming-well-known-reit-etfs><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>FuntapIntroduction I recently came across the Vident U.S. Diversified Real Estate ETF (NYSEARCA:PPTY). Besides the ETF being new to me, I never heard of the manager either. Add the low AUM, and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4686817-ppty-outperforming-well-known-reit-etfs\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"RWR","symbol_name":"SPDR DJ Wilshire REIT ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4686817-ppty-outperforming-well-known-reit-etfs","article_id":"2431535613","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1486702049/image_1486702049.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2431535613","pubTimestamp":1714456800,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"FuntapIntroduction I recently came across the Vident U.S. Diversified Real Estate ETF (NYSEARCA:PPTY). 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Add the low AUM, and normally, I would have just moved to explore another ETF not on my radar yet. The reason I produced this article was the fact it has performed well against two of the better-known index-based REIT ETFs. Part of this analysis includes that comparison. Based on its performance results, I give PPTY a Buy rating for those who use index-based ETFs for their REITs exposure. Vident U.S. Diversified Real Estate ETF review Data by YChartsSeeking Alpha describes this ETF as: The investment seeks to track the performance, before fees and expenses, of the USREX – U.S. Diversified Real Estate Index™. Under normal circumstances, at least 80% of the fund’s net assets, plus borrowings for investment purposes, will be invested in real estate companies principally traded on a U.S. exchange. The index uses a rules-based methodology to provide diversified exposure to the liquid U.S. real estate market. It is co-managed by Vident Investment Advisory, LLC and Vident Advisory, LLC. Benchmark: USREX US Diversified RE TR USD. PPTY started in March of 2018. Source: seekingalpha.com PPTY PPTY has $124m in AUM and its TTM Yield is about 3.9%. One distraction is the 53bps in fees, very high for an index-based ETF. The ETF invests based on four primary factors:   location to obtain diversified geographic exposure that favors dynamic, high-growth areas,  property type fixed allocations seek to ensure diversification and balance,  leverage that favors companies with prudent usage and optimizes the portfolio to direct capital away from highly levered companies,  governance that considers alignment between shareholder and management, derivation of revenue, and other governance indicators.  Understanding the ETF manager A brief look at the manager is useful when I think others like me might be unfamiliar with Vident Investment Advisory, LLC or Vident Advisory, LLC. This is what I found:  Vident’s experts have launched more than 120 ETFs over the past decade—researching and creating reliable and timely data sets, building out a comprehensive methodology to codify a strategy, automating processes that can be scaled, and leveraging the expertise of strategic partners. Vident is committed to delivering on a truly unique idea, philosophy, or market exposure—and our suite of ETFs is no exception. The Vident ETFs harness the benefits of core investment fundamentals; namely, strong governance that fosters human creativity and productivity. The cornerstones of Vident: accumulated knowledge, technical and operational expertise, and entrepreneurial spirit, which are centered around our people, capabilities, and long-standing relationships with what we believe are best-in-class service providers.  Source: videntam.com/vident-etfs Overall, Vident has over $10b in AUM, spread across 28 strategy partners. With investment experience dating back over 20 years, to me, they seem to be a good niche strategy manager, with over 130 ideas currently available to investors. I have no concerns about Vident managing this ETF. Index review As important as the manager is, understanding the index is critical as it drives what the ETF will focus on for 80+% of its portfolio. The points were extracted from dividend.com.  The Index was created on January 9, 2018 by Vident Financial, LLC, the Fund’s index provider (the “Index Provider”), for use by the Fund. The Index is reconstituted and rebalanced semi-annually in January and July. Construction of the Index begins with the universe of U.S.-listed equity securities with a market capitalization of at least $750 million and meeting certain liquidity thresholds (the “Equity Universe”). Companies in the Equity Universe are then screened to keep only those that derive at least 85% of their income from ownership or management of real property. Companies that meet this criterion are then screened to remove companies that are externally managed or that have a low percentage of their shares directly or indirectly available to the public. Property Types included in the Index and the weight allocated to each Property Type, as of each Index reconstitution date, are as follows:     Residential 19.00% Hotel 7.50% Self-Storage 2.00%   Office 17.50% Health Care 7.50% Manufactured Home 2.00%   Industrial 14.50% Data Center 7.50% Student Housing 0.50%   Retail 14.50% Diversified 7.50%   Click to enlarge The pros of such an approach are the possibility of adding Alpha to one's portfolio versus the other two REIT ETFs I compared PPTY against later, which I would classify as \"core\" ETFs for REIT exposure. Of course, that same process can be a negative is executed poorly or, even worse, designed poorly. So far, that has not been the case. Holdings review REIT sector allocations are as follows: videntam.com sectorsSince the index sets starting weights for each sector's allocation, weights should be evaluated relatively, thus Office REITs, the second-largest allocation, would be expected, but it is also underweighted compared to the index target of 17.5%. I suspect this reflects whether this depressed sector will ever get close to pre-COVID valuation levels. Retail REITs are also underweighted, possibly again related to higher interest rates causing a recession. Since PPTY uses the index to build their portfolio, they should classify each holding according to the sector names the index uses: Real Estate, Specialized, and Diversified do not align and represent around 25% of the portfolio weight. Top holdings   videntam.com; compiled by AuthorPPTY holds just under 100 securities, with the Top 20 comprising 52% of the total weight. The sectors listed come from Seeking Alpha, and thus all the sector names do not match what PPTY uses. Seeking Alpha also lists about 6% of the portfolio as being Consumer Cyclical, not REITs. The top names held are all well-known leaders is their segment of the REITs universe. I like the fact the top four each represent a different sub-sector within REITs. This is how Seeking Alpha grades those holdings. seekingalpha.com gradingsDespite low Valuation grades, Wall Street scores all as Buys, SA Analysts agree with that on two of the four, grading the others a Holds. Distributions review seekingalpha.com DVDsAs the below CAGRs indicate, there is no constant growth in payouts, even so Seeking Alpha gives PPTY an \"A\" grade for this metric for other reasons. seekingalpha.com scorecardThe latest PPTY 19a statement shows ROC has accounted for 10-12% of the recent payout amounts. Comparing ETFs For this, I included two popular REIT ETFs that use different indices than each other or the one used by PPTY.   Vanguard Real Estate Index Fund ETF (VNQ): MSCI US Investable Market Real Estate 25/50 Index   SPDR® Dow Jones REIT ETF (RWR): Dow Jones U.S. Select REIT Index   Keeping in mind today's sector allocations probably do not reflect history, they are still useful since all three ETFs are index-based. Fidelity.com; compiled by AuthorIn this comparison, the fact that Office REITs only crack the top five sectors in PPTY shows their selection process definitely is different from the others, who most likely do not screen holdings with the same limits or valuation data. Next, looking at market-cap and style allocations, we see PPTY favors smaller market-cap REITs compared to either of the other ETFs. advisors.vanguard.com compareWhile the Growth allocations are almost the same, PPTY does have a higher weighting in REITs classified as Value. This is also reflected in the following list of common valuation ratios.   morningstar.com; compiled by AuthorGreen shaded data is the best value; red the poorest amongst the three ETFs. Moving beyond what the data shows for today, the total returns since early 2018 when PPTY started, shows the newcomer being the best performer. Without historical values, I can only evaluate whether PPTY is a \"value\" play in comparison to the other two ETFs, which the selected ratios clearly say it is over VNQ or RWR. While the P/E ratio is extreme, the Seeking Alpha REIT experts discount that ratio for REITs, preferring one like FFO instead, which wasn't provided for by my source. seekinglpha.com chartingLooking at slightly truncated data, we see PPTY has the best Sharpe and Sortino ratios, indicating the extra risk taken has paid off for investors. PortfolioVisualizer.comPortfolio strategy Why REITs is now the question. Here are some reasons to consider adding REITs to one's allocation above what an equity ETF might have, which is usually under 3%. Reason #1: low correlation reit.com/nareitLow correlation should result in smaller dips during Bear markets, though Bull peaks will be lower too. Reason #2: better results in a diversified portfolio Using the same source, Morningstar has found that adding an allocation of REITs to a hypothetical portfolio increased returns without increasing risk (1972-2022), with the following charts provided: reit.com/nareitOver this 50-year period, investors picked up 50bps in return for the same level of risk. Reason #3: inflation hedge This comes with a caveat that is shown in the next chart. lh4.googleusercontent.com Notice that mREITs are the worst performer during inflationary periods, whereas equity REITs are only topped by Energy stocks during such times. One explanation is that many underlying assets have rent increase clauses that help or fully offset the effects of inflation. Most, if not all, REIT indices exclude mREITs so that would not be a factor in deciding between REIT ETFs. Risk analysis As for PPTY, the only risk I see is the selection criteria have hidden flaws that their four-point approach hasn't revealed yet. That said, those points seem logical and the index built-in allocation weights should prevent the index, thus PPTY from getting overweight in a REITs sector that is about to head into trouble. In short, the index is designed such that it should not add risks not seen in other index-based REIT ETFs. The biggest risks I see in adding REITs to one's equity mix would be the following:  The longer rates stay at their current level, REITs experience higher financing costs for property maintenance and adding new properties. If rates cause a recession, many REIT sub-sectors are highly correlated to the strength of the economy, so that would not play well. As we saw with COVID, another black swan event is always possible. REITs historically suffered more during such events over the past 20+ years. While the thesis here is owning the best REIT ETF, not the best equity ETF, REITs higher StdDev can be a turnoff for short-term investors.  Conclusion I give PPTY a Buy rating when compared to VNQ or RWR for the following reasons and despite the high fees it charges:  Screening/weighting process other than holding every REIT that trades within the index's inclusion rules and then market-cap weighted, which is how VNQ and RWR build their portfolios. That's where the potential for PPTY adding Alpha comes in. Best CAGR and despite higher StdDev, best risk ratios Yield close to its competitors   The top reason is the key difference between PPTY and the other ETFs. While not like an actively managed REIT ETF, the four inclusion factors listed above, to me, open up the possibility of the outperformance continuing. That is what each investor needs to determine for themselves. Even though the index has some factor-based selection rules, I would still treat PPTY as a \"Core\" ETF for REIT exposure, meaning it should be viewed as a long-term holding, thus my Buy Rating is not based on the current price but as a buy/hold ETF.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2431535613"}