GQRE: Sophisticated Real Estate ETF, Not Better Than Simple Ones

seekingalpha09-08

FlexShares Global Quality Real Estate Index Fund ETF selects real estate companies based on quality, value and momentum.GQRE has a global strategy, but 65% of its assets are in the U.S.GQRE shows a ...

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Bet_Noire/iStock via Getty Images GQRE strategy FlexShares Global Quality Real Estate Index Fund ETF (NYSEARCA:GQRE) started investing operations on 11/05/2013 and tracks the Northern Trust Global Quality Real Estate Index. It has 170 holdings, a 30-day SEC yield of 3.08%, a distribution yield of 2.89% and a net expense ratio of 0.45%. As described in the prospectus by FlexShares, The Underlying Index is designed to reflect the performance of a selection of companies that, in aggregate, maximize exposure to quality, value and momentum factors, within a universe of companies operating in the real estate sector. Constituents of the parent index (Northern Trust Global Real Estate Index) are ranked using a proprietary multi-factor score including quality, value and momentum characteristics. The selection and weighting process is based on this score, and also takes into account industry, country, liquidity and turnover constraints. Mortgage REITs and real estate services companies are excluded. The Underlying Index is reconstituted on a quarterly basis. In the most recent fiscal year, the portfolio turnover rate was 49%. GQRE portfolio The fund has about 21% of assets in large companies, 54% in mid-caps and 25% in small and micro-caps. The heaviest country in the portfolio is by far the U.S. (65% of assets), followed by Japan (9.5%). Other countries are below 4%. The next chart plots the top 8 countries, excluding the U.S. for readability.   GQRE geographical allocation ex-US (Chart: author: data: FlexShares) The heaviest subsectors are retail REITs (22.3%), specialized REITs (20.7%), real estate management and development (14.6%) and residential REITs (13.8%). Other industries are below 8%.   GQRE industry breakdown (Chart: author; data: Fidelity) GQRE is much cheaper than the US-only benchmark Vanguard Real Estate ETF (VNQ) based on the price/book ratio. However, it shows an inferior book value growth rate.     GQRE VNQ   Price/book 1.43 2.43   Book value growth +1.56% +4.25%   Click to enlarge Data: Fidelity The top 10 issuers, listed in the next table, represent 32.2% of asset value and the largest position weighs 5.2%. All of them are U.S.-based. Risks related to individual companies are moderate, although the top 3 names are over 4%.   Name Ticker Weight %   Simon Property Group SPG 5.22   Digital Realty Trust DLR 4.64   AvalonBay Communities AVB 4.15   Equity Residential EQR 3.31   Prologis PLD 3.21   American Tower AMT 2.78   VICI Properties VICI 2.55   Essex Property Trust ESS 2.49   Kimco Realty KIM 2.03   UDR UDR 1.80   Click to enlarge Performance Since its inception in 2013, GQRE has significantly underperformed the U.S. benchmark VNQ, which shares more than half of its holdings. GQRE vs VNQ since 11/6/2013 (Seeking Alpha) GQRE lags VNQ by 2.2% over the last 12 months: GQRE vs VNQ, 12-month return (Seeking Alpha) Distributions have been very irregular over the years, as reported on the chart below. GQRE doesn’t match the needs of investors seeking a steady or growing income stream. Distribution history (Seeking Alpha) GQRE vs competitors The next table compares characteristics of GQRE and two of the largest global real estate ETFs (including the U.S.) with over 10 years of track record:  iShares Global REIT ETF (REET) SPDR Dow Jones Global Real Estate ETF (RWO)      GQRE REET RWO   Inception 11/5/2013 7/8/2014 5/7/2008   Expense Ratio 0.45% 0.14% 0.50%   AUM $354.99M $4.01B $1.32B   Avg Daily Volume $656.17K $15.40M $5.39M   Holdings 170 390 252   Top 10 32.20% 36.18% 38.11%   Turnover 49.00% 6.00% 5.00%   Yield TTM 2.46% 2.74% 3.30%   Div. Growth 5 Yr CAGR -4.42% -11.36% -1.73%   Click to enlarge GQRE is the smallest and least liquid of these funds. It has fewer holdings than its peers, but is slightly less concentrated in the top holdings, and has the highest turnover by far. The next chart compares total returns, starting on 7/9/2014 to match all inception dates. GQRE comes in second position, shortly behind REET. GQRE vs competitors since 7/9/2014 (Seeking Alpha) Over the last 12 months, the three funds are almost on par. GQRE vs competitors, 12-month return (Seeking Alpha) Takeaway FlexShares Global Quality Real Estate Index Fund ETF selects real estate companies based on quality, value and momentum. GQRE implements a global strategy, but 65% of its asset value in the U.S. It shows a more attractive valuation than the U.S. benchmark VNQ, but has lagged it since inception. Despite a sophisticated 3-factor strategy, GQRE has not shown a significant edge over unfiltered global real estate ETFs like REET and RWO. REET looks slightly better than GQRE, with a lower expense ratio and turnover, a higher liquidity and a marginally better historical performance.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"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":"4.26.4","shortVersion":"4.26.4","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/2465256429"}