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 specific asset allocation needs. In addition, ETFs are a convenient and easy method of portfolio diversification across a number of asset classes.
Most ETFs track market indexes, mirroring the performances of entire markets. In this article, we’ll look at how sector-specific and sector-agnostic ETFs invest in Columbia Property Trust’s (CXP) stock.
Columbia Property Trust is a mid-sized stock on the NYSE, with a market capitalization of $3 billion. Consequently, Columbia Property Trust sees allocation in some REIT-specific ETFs.
For example, the iShares US Real Estate ETF (IYR) has a ~0.33% stake in the company. Another major REIT ETF, the SPDR Dow Jones Wilshire REIT ETF (RWR), has 0.5% exposure to Columbia Property Trust. The SPDR Dow Jones Wilshire Global Real Estate ETF (RWO) has 0.3% exposure to the company.
IYR is the biggest of the lot, with $4.6 billion in assets under management and an expense ratio of 0.43%. RWR has $3.2 billion in assets under management and an expense ratio of 0.25%, while RWO has $2 billion in assets under management and an expense ratio of 0.5%.
The holdings of a particular company in an ETF depend on the investment objective of the ETF. Consequently, sector-specific ETFs should have a higher exposure to companies in a sector than sector-agnostic ETFs. We outline the holdings of various ETFs in the above chart.
Sector-agnostic ETFs such as the First Trust Financials AlphaDEX ETF (FXO) and the iShares Morningstar Small-Cap ETF (JKJ) also have exposure to Columbia Property Trust at 0.2% and 0.6%, respectively. FXO has an asset base of $1 billion and an expense ratio of 0.64%.
Please visit Market Realist’s REIT page to learn more about this industry.