The (TAO) Of Emerging Market Real Estate ETFs

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August 12, 2012 10:43pm NYSE:TAO

Steven Orlowski: Discussions about real estate, both commercial and residential, are part and parcel of ongoing debates to determine the future direction of economies worldwide.

Keeping things simple is TAO.

Image courtesy Jakob Montrasio:

A rooftop garden stands out amongst the houses in Xiamen, China

In emerging markets there are great differences between real estate markets from country to country. While some areas in China have been overbuilt and are suffering the effects of vacant commercial buildings and offices, other areas are still building residential real estate to meet the demands of a surging middle class.

Other emerging markets are in various stages of build up, reflecting their place along the path to developed status.

There are not a whole lot of ways to gain exposure to emerging markets real estate, either commercial or residential. In fact there is only one ETF dedicated to emerging market real estate: the Guggenheim China Real Estate ETF (NYSEARCA:TAO).

TAO is designed to deliver:

“investment results that correspond generally to the performance, before the Fund’s fees and expenses, of an equity index called the AlphaShares China Real Estate Index”. The index is “designed to measure and monitor the performance of publicly issued common equity securities of publicly-traded companies and real estate investment trusts (“REITs”) which are open to foreign ownership and derive a majority of their revenues from real estate development, management and/or ownership of property in China or the Special Administrative Regions of China such as Hong Kong and Macau”.

TAO is primarily invested in Hong Kong (80.04%) but also mainland China (18.67%) and Singapore (1.29%). The ETF has 45 holdings with the top 10 positions accounting for 50% of the funds assets. Those holdings are as follows:

Sino Land Co. Ltd. 5.41 %
Wharf Holdings Ltd. 5.25 %
Hong Kong Land Holdings Ltd. 5.12 %
China Overseas Land & Inv 5.12 %
Henderson Land Development 5.11 %
Cheung Kong Holdings Ltd. 4.95 %
Hang Lung Properties Ltd. 4.78 %
The Link Reit 4.74 %
New World Development Ltd. 4.49 %
Hang Lung Group Ltd. 4.38 %

Fund expenses are capped at .65% and the ETF has a current dividend yield of 1.02%. Volume is very light with a 90 day average volume just over 11,000 shares per day. However TAO has been doing quite well this year. The share price is up from about $15 per share at the start of 2012 to a recently traded $19.00 per share, a year to date return of nearly 27%.

On the year to date chart the ETF looks like it may be topping. Though the range appears to be narrowing, a short term pullback may be in the offing. Overall TAO is up from the lows of 2009 but has struggled, trading essentially sideways for the last few years in a very wide range from around $14 per share to upwards of $21 per share. The long range chart shares some characteristics with the year to date chart, but it is a little more promising, allowing for the possibility of more upside.

The long range outlook for real estate in China is still good despite the ongoing slowdown. Demand will increase over time although expect the volatility to continue. I would not commit any money to TAO however — unless the money invested can be parked and held a very long time.

Written By Steven Orlowski From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

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