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An Environment-Conscious Real Estate ETF Hits Market – November 25, 2022

The environmental, social and governance (“ESG”) investing trend has remained a firm favorite among investors since the pre-outbreak period. Increasing regulatory requirements are helping the space gain momentum. In Europe, the Sustainable Finance Disclosure Regulation (SFDR) was recently implemented.

Against this background, iShares recently launched a fund on the environmentally conscious ETF (ERET). Below we discuss the fund in detail.

It will be inside

The iShares Environmentally Aware Real Estate ETF aims to track the investment results of an index comprised of developed market real estate stocks, while targeting increased exposure to green certification and energy efficiency compared to the parent index. United States takes about 60% of the fund. Japan takes second place at 9.9%.

The fund holds a total of 367 shares. No stock makes up more than 6.27% of the fund. Prologis REIT (6.27%), Equinix REIT (5.60%) and VICI PPTYS (VICI) are the top three holdings of the fund. Specialized REITs (16.28%), Retail REITs (15.78%), Industrial REITs (14.32%), Residential REITs (15.05%) and Office REITs (10.06%) are the top five industries of the fund. The fund charges 30 bps in fees.

How does it fit into a portfolio?

Institutional investors have recently shown more interest in ESG (Environment Social Governance) based products. As demand for green-focused investment vehicles increases, investors are coming up with green real estate ETFs.

Building shares under this ETF have high energy efficiency, a healthier indoor environmental quality and use more environmentally friendly construction materials. The launch of the world’s first equity investment instrument targeting real estate companies that specialize in and support green buildings points the way for more sustainable investment platforms.

The property industry’s ability to deliver greener buildings – mainly by refurbishing existing assets – is important, said Ali Ingram, director and head of sustainability in JLL’s European office investment team, according to a source. In New York, modernizing 50,000 buildings over the next decade could cost owners between $16.6 billion and $24.3 billion, according to New York’s Urban Green Council, according to the same article.

Competition

There are already two green building ETFs in place. Global X Green Building ETF (GRNR Free report) andInvesco MSCI Green Building ETF (GBLD Free report). GRNR and GBLD charge 45 bps and 39 bps in fees. GBLD places 94.15% weight in real estate with the United States taking about 29.3% weight. Japan takes second place with 27% exposure.

Global X Green Building ETF provides exposure to companies positioned to benefit from the increased demand for buildings that reduce or eliminate negative impacts and create positive impacts on the natural environment. Real estate takes 65% weighting of the fund with the United States taking about 26.9% weighting, followed by Japan (19.2%) and France (10.9%). Among the three funds, ERET charges the least, which can help the newcomer make a killing.

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