First Trust launches ‘disruptive technology’ real estate ETF

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First Trust has launched a new thematic ETF in Europe targeting real estate companies providing the physical infrastructure underpinning disruptive technologies.

The underexplored strategy delivers exposure to several cutting-edge technology-related themes such as cloud computing (through exposure to data centres), 5G connectivity (telecommunication tower sites), and e-commerce logistics (specialized buildings and warehouses).

The fund may appeal to investors seeking an alternative play on these popular themes, as well as investors who value the diversification benefits of property exposure in their portfolios but are unsatisfied with traditional broad market REITs which are typically positioned within declining areas such as high street retail or offices.

Rupert Haddon, Managing Director at First Trust, said: “We are excited to be bringing this new ETF into our suite of award-winning thematic funds. Our focus has always been on offering products that offer clients access to untapped market segments, and DTRE forms the natural next step for our European business.

“With the mass adoption of cloud, the internet of things, robotics & AI, 5G, and other disruptive technologies, in addition to accelerating digitization, the growing need for infrastructure to support our digital activities and the immense amount of data behind them has become paramount. We are thrilled to be able to give our investors access to this ground-breaking infrastructure in a single UCITS portfolio.”

Methodology

The fund is linked to the Alerian Global IT Real Estate & Infrastructure Index which selects its constituents from a universe of developed market real estate investment trusts (REITs) and other real estate companies with market capitalizations above $100 million and average daily trading volumes greater than $5m.

The methodology selects constituents that have significant exposure to the following business segments: Rapid Data Transfer (5G-capable towers, fiber-optic cable networks), Distributed Data Handling (data centres, cloud computing networks), E-commerce Warehousing (distribution warehouses, storage warehouses, logistics facilities).

The index is weighted by float-adjusted market capitalization while capping any single constituent at 10% and the cumulative weight of constituents with weights above 5% at 40%. Additionally, the index ensures that at least 80% of its allocation is directed towards ‘pure-play’ exposure (constituents deriving more than 50% of their revenue or assets from the targeted business segments). Reconstitution and rebalancing occur quarterly.

Nearly three-quarters (71.1%) of the index was allocated to US-listed stocks with the next-largest country exposures being Japan (8.1%), the UK (6.8%), and Australia (5.2%).

Notable positions include Prologis (6.8%), Equinix (6.4%), Crown Castle International (6.3%), American Tower (6.3%), SBA Communications (6.0%), Iron Mountain (5.9%), Digital Realty (5.2%), and First Industrial Realty (4.9%).

The ETF comes with an expense ratio of 0.60%. Income is distributed.

The fund will compete with the WisdomTree New Economy Real Estate UCITS ETF (WTRE) which launched in February 2022 on LSE as well as on Deutsche Börse Xetra and Borsa Italiana. WTRE is linked to the CenterSquare New Economy Real Estate UCITS Index which targets the infrastructure powering the so-called ‘new economy’, a buzzword used to describe high-growth industries that are on the cutting edge of technology and are believed to be the driving force of economic growth and productivity. The ETF comes with an expense ratio of 0.45%.