Emles launches first U.S. real estate debt ETF tracking the Solactive U.S. Real Estate Bond Index
Timo Pfeiffer, Chief Markets Officer at Solactive
Contemporary investors are increasingly seeking alternative strategies, such as real estate, to generate uncorrelated returns and diversify away from traditional asset classes. While many investors allocate to real estate equity, corporate bonds issued by real estate companies offer a compelling investment opportunity. Historically, real estate corporate bond debt has been difficult to access – until now.
The Emles Real Estate Credit ETF [REC] is the first and only ETF to provide investors access to the formerly elusive sector of real estate corporate bond debt. The ETF tracks the Solactive U.S. Real Estate Bond Index, which is a market value-weighted index designed to measure the performance of corporate bonds issued by U.S. companies in the real estate sector.
Real estate investments offer strong returns and diversification benefits relative to traditional asset classes. Yet despite the diversification benefits, the real estate market is still subject to volatility, which can increase during periods of economic stress. Investors can now complement and diversify their real estate exposure with a portfolio of bonds issued by real estate companies.
Taking a deeper look at the fundamental underpinnings of real estate companies, they offer strong financial covenants relative to other corporate peers, whichmayhelp them better managedebt by limiting the amount of leverage it employs. In addition, real estate corporate bond investors sit higher in the capital structure than their respective equity investors, meaning companies are required to pay debt holders before their equity counterparts.
The Emles Real Estate Credit ETF utilizes the Solactive U.S. Real Estate Bond Index as its underlying. Bonds eligible for the index must be a component of either the Solactive USD HY Corporate Index (DE000SLA2XA1) or the Solactive USD Investment Grade Corporate Index (DE000SLA3B58). Additionally, the bonds must have a country of risk of the United States of America and minimum time to maturity of at least 36 months for new issues entering the index.
Finally, the minimum issue rating of eligible bonds must be at least B- / B3 from S&P and/or Moody’s. If one of the rating agencies rates a bond below this threshold, the bond will not be eligible for inclusion in the index. With the release of the Emles Real Estate Credit ETF, Emles offers an investable solution without the additional leverage or risk that investors may incur when allocating towards real estate equity.
Timo Pfeiffer, Chief Markets Officer at Solactive, comments:“Diversification is the 101 in investing, and the real estate sector serves as a compelling alternative asset class compared to pure asset allocation within, e.g., equity markets and sectors. We are very happy to act as the index provider of this pioneering ETF, which offers alternative access to the real estate sector via a fixed income exposure that allows investors to diversify their portfolios without being exposed to volatile market movements.”
Gabriel Hammond, Chief Executive Officer at Emles, comments: “At Emles, we are singularly focused on delivering innovative asset classes that investors have historically struggled to access. In line with our mission and in partnership with Solactive, we are excited to offer the first ETF that provides access to real estate corporate bonds – the Emles Real Estate Credit ETF [REC].”
The Emles Real Estate Credit ETF [REC] went live on the 15th of October.