Real estate has been in high demand from investors for a while. The keen interest in “concrete gold” has also moved the shares of real estate companies into the limelight of investors.
Listed companies that are affiliated with the real estate business also benefit from this trend. Now for the first time since the introduction of the Global Industry Classification Standard (GICS) in 1999, this structure may be subject to change. This standard lays down the classification of companies into industry groups. The leading index providers, S&P Dow Jones and MSCI Inc., decided to add another group to the existing ten, i.e. real estate, as of 1 September 2016. This is supposed to take into account the growing relevance of the real estate sector and the rising interest shown by investors. While real estate shares have been part of the MSCI World index at a weighting of 3%, they were classified as financials. Now they will form a separate industry group.
Separate index group
Until 31 August 2016 the financial sector will retain a weighting of 19%, i.e. the highest one, in the global MSCI universe. 3% are real estate shares, which will be carved out from the financial sector on 1 September 2016 to form their own group. This step, taken by the index providers, makes sense. Real estate shares have little to do with the performance of bank shares, insurance companies, or asset management companies. Whereas many banks and insurance companies are highly cyclical, real estate shares are the epitome of stability. So far the significance of real estate shares, as part of the powerful financial sector, has been marginal, but this is about to change drastically. Investors, who wish to pursue a sector-neutral allocation, will now have to have a closer look at real estate shares.
Higher significance of real estate shares
The index providers explain their step with the increasing significance of the real estate sector worldwide. Of course they are also reacting to the pressure of the investment community, which has demanded this step for a while.
Valuation justified by growth
We believe that the creation of the new sector will shift the investors’ focus to real estate shares. The shares of listed real estate companies are currently traded at a dividend yield of 3.8%. This percentage is clearly above the average of 2.7% of all companies represented in the MSCI indices. In terms of the valuation metrics, real estate shares are more expensive than banks or insurance companies. However, given the stable business of most of the companies, we regard this valuation as justified. ERSTE-SPARINVEST recognised the importance of real estate shares as early as in 2001 and manages tow funds:
Both funds have outperformed both the financial index and the MSCI World index in the past five years (please see the chart below).
Chances and risks
Investors of the fund have to be aware of the fact that this is no real estate, but a real estate share. This means that the shares in the fund may be subject to price fluctuation, and capital losses are possible. The value of the shares can also be burdened by exchange rate fluctuations. On the upside, the investor has the chance of an above-average dividend yield.
Projections and forecasting is no reliable indicator for future developments.
Warning notices pursuant to the Austrian Investment Fund Act of 2011
ESPA STOCK EUROPE-PROPERTY may exhibit increased volatility due to the composition of its portfolio: i.e. the unit value can be subject to significant fluctuations both upwards and downwards within short periods of time.
ESPA STOCK ASIA PACIFIC PROPERTY may exhibit increased volatility due to the composition of its portfolio: i.e. the unit value can be subject to significant fluctuations both upwards and downwards within short periods of time.
This document is an advertisement. All data is sourced from ERSTE-SPARINVEST Kapitalanlagegesellschaft m.b.H., Erste Asset Management GmbH and ERSTE Immobilien Kapitalanlagegesellschaft m.b.H. unless indicated otherwise. Our languages of communication are German and English.
The prospectus for UCITS (including any amendments) is published in Amtsblatt zur Wiener Zeitung in accordance with the provisions of the InvFG 2011 in the currently amended version. The simplified prospectus is prepared by ERSTE Immobilien Kapitalanlagegesellschaft m.b.H. and published in Amtsblatt zur Wiener Zeitung in accordance with the provisions of the ImmoInvFG 2003 as amended. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by ERSTE-SPARINVEST Kapitalanlagegesellschaft m.b.H., Erste Asset Management GmbH and for ERSTE Immobilien Kapitalanlagegesellschaft m.b.H. pursuant to the provisions of the AIFMG in connection with the InvFG 2011.
The fund prospectus, Information for Investors pursuant to § 21 AIFMG, the simplified prospectus, and the key investor document/KID can be viewed in their latest versions at the web site www.erste-am.com or www.ersteimmobilien.at or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus or simplified prospectus, the languages in which the key investor document/KID is available, and any additional locations where the documents can be obtained can be viewed on the web site www.erste-am.com or www.ersteimmobilien.at.
This document serves as additional information for our investors and is based on the knowledge of the staff responsible for preparing it at the time of preparation. Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation and risk appetite. Past performance is not a reliable indicator of the future performance of a fund.