Hartford Funds has expanded its line of Lattice exchange traded funds with a real estate investment trust strategy that implements a risk-first investment design based on a multi-factor, smart-beta approach.
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On Tuesday, Hartford Funds launched the Lattice Real Estate Strategy ETF (NYSEArca: RORE). RORE has a 0.45% total expense ratio.
According to a prospectus sheet, RORE will try to reflect the performance of the Lattice Risk-Optimized Real Estate Strategy Index, which tracks U.S. REITs based on a favorable combination of factor characteristics, such as valuation, momentum and quality.
“The Index is built with a rules-based, proprietary methodology which employs a multi-layered risk-controlled approach that seeks to address the Strategy’s active risks versus the cap-weighted universe,” according to RORE’s prospectus. “Specifically, the Index seeks to select companies exhibiting attractive risk premia profiles while managing overall volatility levels and active risks.”
The underlying portfolio is risk- and factor-adjusted twice per year in March and September.
“The launch of RORE is a natural extension of Hartford Funds’ strategic beta ETF platform,” Darek Wojnar, Head of Exchange-Traded Funds at Hartford Funds, said in a press release. “The strategy focuses exclusively on REITs and may be a compelling solution for investors interested in taking advantage of the growing opportunities in the real estate sector.”
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RORE may be seen as a way to capture the income and growth potential of investing in U.S. REITs, and due to its alternative indexing methodology, the fund may produce improved risk-adjusted returns.
The REITs category has garnered greater attention in recent weeks after as the REITs sector formally became the 11th major industry segment of the S&P Dow Jones Indices in September. REITs, which make up about 3% of the S&P 50o’s market valuation, split away from the financial sector, becoming the newest sector under the Global Industry Classification Standard.
When the S&P Dow Jones Indices and MSCI announced they would create an independent real estate sector, J.P. Morgan projected that active equity funds were so underweight toward REITs that the new sector could cause $100 billion flows to the category. Since the newly minted sector would rival in size to utilities, telecoms and materials sectors, a number of fund managers who have not included REITs exposure may eventually bulk up on real estate.
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