Tough Real Estate Market Doesn't Derail NETS
September 9, 2008

SAN DIEGO (ETFguide.com) - Northern Trust launched its NETS ETF number 16 on Monday, September 8, 2008. The NETS Tokyo Stock Exchange REIT Index Fund (NYSEarca: JRE) is the first real estate specific ETF in Northern Trust’s suite of ETFs.

The underlying index is a market capitalization weighted index consisting of stocks of all the REITS traded primarily on the Tokyo Stock Exchange. A real estate investment trust (REIT) is a company whose primary business is managing groups of income-producing properties. To qualify for the REIT status (REITs pay no corporate income tax), the real estate company must pay out at least 90% of its taxable profits in the form of dividends.

The Tokyo REIT NETS trade on the NYSEarca with a 0.47% expense ratio.

JRE consists of 41 holdings. The Nippon Building Fund and Japan Real Estate Investment Corp. represent the two largest holdings with a weight of 17.54% and 12.05%. The past performance of the Tokyo Stock Exchange Index reflects the struggle of Japan’s economy and real estate market. The index is down 36.76% over the past 10 years.

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The only other ETF with significant exposure to the Japanese real estate market is the iShares FTSE/NAREIT Asia Index Fund (Nasdaq: IFAS) with a 32.28% weighting in Japan. IFAS is down nearly 30% since the beginning of the year.

Japan is not the only Asian market that has seen real estate prices tumble. China, represented by the Claymore/AlphaShares China Real Estate ETF (NYSEarca: TAO) has lost nearly half of its value since the Christmas Day high of $26.99.

Even broad based international real estate ETFs like the SPDR Dow Jones Wilshire International Real Estate Portfolio (AMEX: RWX) and the iShares FTSE EPRA/NAREIT Global Real Estate ex-US ETF (Nasdaq: IFGL) have seen declines of more than 25%. This is not surprising as both RWX and IFGL count Japan as top country holding (approximately 20%).

With a less than stellar performance record, one could argue that Asian real estate, in particular Japan, would appeal largely to contrarian investors and bottom fishers.