September 17, 2007
Claymore Files For China Real Estate ETF

China is hot. And international real estate is hot. Put them together and you have a fund that could attract a fair bit of attention.

A new filing hit the Securities and Exchange Commission [SEC] last week for just such an exchange-traded fund. And not surprisingly, Claymore is behind the filing, continuing to build its reputation for filling those previously unexplored niches of the ETF market. Although a few international real estate funds have been launched, there really isn't anything that focuses on the real estate market in one particular country outside the U.S.—at least nothing trading on the U.S. market, that is.

The Claymore/Alphashares China Real Estate ETF will invest in Chinese companies that derive the bulk of their revenues from real estate development and property management in China, Hong Kong and Macau. The fund will hold both ADRs and local shares (Hong Kong H Shares and China B and N shares). The underlying index is a free-float adjusted modified market cap index, with a 5% cap on component weights.

The index also has a minimum component weighting requirement of 0.35% of the index, which is a unique twist in the methodology, and a minimum market cap requirement of $250 million. This is a two-sided coin though, in a market like China. Potential investors in a fund tracking this index may feel that smaller, potentially high-growth companies—and the returns they could contribute to the index—are being excluded. Others might see the exclusion of small, illiquid shares as a way to cut down on expenses, figuring that these smaller companies would likely not make a meaningful contribution to the index's performance.

There is no word yet on listing site or expense ratio.

When you think about it, real estate in China is not a bad idea at all. With its booming economy, there is likely increasing demand for retail and industrial space, not to mention housing as Chinese citizens move to urban areas seeking jobs. On one level, China is a huge country, with more than enough land, but it is also a very rural country with some extremely undeveloped and isolated areas. It is the real estate around the urban centers or near transportation hubs that will likely become the most valuable, and the China real estate story probably will be all about location, location, location.

(Source: SeekingAlpha)