Portfolio diversification through ETFs
Asset allocation is a primary factor responsible for investment returns, and ETFs are a convenient way for investors to build a portfolio that meets the specific asset allocation needs of investors. In addition, ETFs are a convenient and easy way to diversify a portfolio generally across a number of asset classes.
Most ETFs also track a market index, mirroring the performance of an entire market in a single trade. In this final part of our series on Post Properties, we’ll look at how sector-specific and sector-agnostic ETFs invest in Post Properties’ (PPS) stock.
Post Properties is a major stock on NYSE (New York Stock Exchange), with a market capitalization of $3.2 billion, and it’s part of an S&P 600 index. Consequently, Post Properties sees allocation in some ETFs that focus on REITs (real estate investment trusts). For example, the iShares US Real Estate ETF (IYR) has a 0.39% stake in the company. Other major REIT-specific ETFs include the SPDR Dow Jones REIT ETF (RWR), which has 0.55% exposure in Post Properties, and the SPDR DJ Wilshire Global Real Estate ETF (RWO), which has a 0.32% exposure in the company.
REIT-focused ETFs have exposures in a range of REIT stocks, including AvalonBay Communities (AVB), Essex Property Trust (ESS), and Equity Residential (EQR). The iShares US Real Estate ETF (IYR) is the biggest ETF of the lot, with $4.5 billion in assets under management and an expense ratio of 0.43%. The SPDR Dow Jones REIT ETF (RWR) has $3 billion in assets under management, with an expense ratio of 0.25%. By comparison, the SPDR DJ Wilshire Global Real Estate ETF (RWO) has $1.9 billion in assets under management, with an expense ratio of 0.5%.
The holdings of a particular company in an ETF depend on the investment objectives of the ETF. Consequently, sector-specific ETFs should have a higher exposure to companies in the sector than sector-agnostic ones. In the above graph, you can see the holdings of various ETFs with exposure to Post Properties.
Sector-agnostic ETFs like the First Trust Financials AlphaDEX Fund (FXO) and the Rydex S&P Midcap 400 Pure Growth (RFG) have exposure to Post Properties, with FXO having 0.55% exposure and RFG having 1.31%. FXO has an asset base of $973 million and an expense ratio of 0.80%.
Please visit Market Realist’s REIT page to learn more about this industry.