PPTY Listed Among "REIT ETF Sharpshooters"

Posted by Vident Financial on 2/18/22 12:52 PM

Seeking Alpha is a financial news and analysis site designed for investors focusing on quantitative (i.e., mathematical) analysis. A recent article titled "Overweight 'Great' Real Estate" (Jan 7, 2022, seekingalpha.com), written by Brad Thomas, author of The Intelligent REIT Investor Guide first took a look at the large well-known REITS, but then pivoted to a different category: "Let’s move on to the seven so-called REIT ETF “sharpshooters” that are differentiated by design." Seven REIT focused exchange-traded funds were included in their 'sharpshooters' category, including U.S. Diversified Real Estate ETF (PPTY).

The analysis looked at diversification and commented on PPTY's level of diversification:

"In contrast, PPTY – which focuses on property sector weightings – has a diversification score of 8 with 115 holdings. That includes 27.9% exposure within its top 10 list."

[Author Note: As of January 31, 2022, PPTY held 111 securities, with 29.48% of such holdings accounting for the top 10.] For current holdings please visit www.videntfunds.com/funds/ppty or call 800.617.0004.

For reference, their diversification score goes from 0 to 10, which puts PPTY on the high side, and considerably higher than the 'sharpshooter' average of 4.2.

It's important to note what the sharpshooter analogy means. The article is about funds that are focused on a certain target, not trying to cover the whole market like cap-weighted funds do. This makes them less likely to be diversified1. The investor tends to get focus (with the hope of better returns), but possibly at the expense of diversification. PPTY has a focus: it tracks the U.S. Diversified Real Estate Index (USREX), which targets high growth sectors, underweights regions more likely to have real estate prices at bubble levels, focusing instead on regions with strong economic productivity. And USREX tends to screen out the kind of high debt companies that are vulnerable during bad times. But these focus areas do not rule out having high diversification.

According to the Seeking Alpha analysis, PPTY beat the average of its 'sharpshooter' class on a one-year basis, delivering a 36.3% total return in contrast with their 'sharpshooter' average of 30.4%. PPTY also beat what Seeking Alpha called "the billion dollar plus" class, which, according to Seeking Alpha, produced an average return of 34.5% over the same time period. (Source: "Overweight 'Great' Real Estate", Brad Thomas, Jan 7, 2022, seekingalpha.com). [Author Note: It is unclear what period Seeking Alpha is showing in its return calculations or whether such returns are measuring NAV per share or market price returns. Please see PPTY’s annualized returns below.]

The premise behind the index that PPTY tracks is a focused one: it focuses on fundamental principles like human productivity and inherent value (which attempts to counter the pro-bubble dynamics of cap-weighting), but since one of the principles is to acknowledge uncertainty and to therefore diversify, it does not let focus on factors override the diversification.

U.S. Diversified Real Estate ETF (PPTY)

  Quarter (Cumulative) YTD (Cumulative) 1 Year (Annualized) 3 Year (Annualized) Since Inception (3-26-18) (Annualized)
NAV 14.35% 40.13% 40.13% 19.11% 16.64%
Market Price 14.25% 40.31% 40.31% 19.21% 16.66%

Source: Vident Advisory, LLC, as of 12-31-21.

Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted. Short term performance is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. To obtain performance data current to the most recent month-end, please call (800) 617-0004 or visit www.videntfunds.com/funds/ppty. The fund’s total annual operating expense is 0.53% and the total annual operating expense after fee waiver is 0.49% as of 1-31-22.

1 PPTY is considered "diversified” as such term is defined by the Investment Company Act of 1940. Further, USREX uses a rules-based methodology to provide diversified exposure to the liquid U.S. real estate market. Please see PPTY’s prospectus for a further discussion.

The performance returns and holdings information of PPTY reported in the January 7, 2022, Seeking Alpha article are as of a former period in time, and Vident Financial and its subsidiaries do not guarantee their accuracy. PPTY holdings and allocations are subject to change and should not be considered a recommendation to buy or sell any security. For current holdings please visit www.videntfunds.com/funds/ppty or call 800.617.0004.

Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. To obtain a prospectus visit www.videntfunds.com/literature or call 800-617-0004. Please read it carefully before investing.

Investments involve risk. Principal loss is possible. PPTY has the same risks as the underlying securities traded on the exchange throughout the day at market price. PPTY’s investments will be concentrated in an industry or group of industries to the extent the Index is so concentrated, and the Index is expected to be concentrated in real estate-related industries. PPTY is expected to invest substantially all of its assets in real estate-related companies. Investments in real estate companies involve unique risks. Real estate companies, including REITs, may have limited financial resources, may trade less frequently and in limited volume, and may be more volatile than other securities. The risks of investing in real estate companies include certain risks associated with the direct ownership of real estate and the real estate industry in general. The equity securities of smaller companies have historically been subject to greater investment risk than securities of larger companies. Investor shares are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from PPTY. Ordinary brokerage commissions may apply.

PPTY’s investment adviser is Vident Advisory, LLC. PPTY’s sub-adviser is Vident Investment Advisory (VIA). Vident Financial owns the index that underlies PPTY. The U.S. Diversified Real Estate ETF is distributed by ALPS Distributors, Inc. ALPS is not affiliated with Vident Financial, Vident Advisory or VIA.

Diversification does not ensure a profit or protect against a loss.

The opinions expressed herein are those of Vident Financial at the time of publication and are subject to change. This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the information described herein, any risks associated therewith and any related legal, tax, accounting or other material considerations. Recipients should not rely on this material in making any future investment decision.

Investors cannot invest directly in an index. Indexes are not managed and do not reflect management fees and transaction costs that are associated with some investments. Past performance does not guarantee future results.