New ETF launched to mimic UK real estate market

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BlackRock has launched the first exchange-traded fund (ETF) to provide passive exposure to the UK commercial real estate market.

The iShare MSCI Target UK Real Estate UCITS ETF will aim to achieve a risk and return profile similar to the underlying property market in the UK.

BlackRock said the ETF would provide the same liquidity and ease of access of a real estate investment trust (REIT).

There are already a number of REIT ETFs in existence, but this is BlackRock’s second direct property ETF, having launched a US fund in January.

While investors can use REITs to overcome the lack of liquidity and high transaction costs associated with private real estate investments, BlackRock said REITs “do not closely replicate the behaviour of physical real estate”.

BlackRock said its ETF has a total expense ratio of 0.4%.

The launch comes at a time when the real estate asset class is attracting unprecedented volumes of capital from institutional investors around the world.

“Investors are having to work even harder to find assets with the potential to deliver an attractive yield, and as part of this they are increasingly looking at property,” said Tom Fekete, head of product development for EMEA at iShares.

“Hamstrung by high barriers to entry, direct investment in real estate is not always a viable option, and this is particularly the case for those investors with a small amount of capital to invest.

“Our fund aims to mitigate these issues in a cost-efficient manner, and offer instant access to an asset class that is otherwise considered to be illiquid.”

The underlying MSCI UK IMI Liquid Real Estate index reduces volatility by giving higher weightings to lower volatility stocks, and uses REITs’ balance sheets to calculate the average proportion of debt across the REITs portfolio. It also allocates to inflation-linked government bonds to reduce leverage and provide inflation protection.

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