T
he FlexShares Global Quality Real Estate Index Fund ETF (GQRE) began operations on November 5th, 2013, and tracks the Northern Trust Global Quality Real Estate Index. It has a 30-day SEC yield of 3.08% and a distribution yield of 2.89%. The net expense ratio is 0.45%.

    The Underlying Index is designed to reflect the performance of a selection of companies in the real estate sector that maximize exposure to quality, value, and momentum factors. The selection and weighting process is based on a proprietary multi-factor score, which also takes into account industry, country, liquidity, and turnover constraints. Mortgage REITs and real estate services companies are excluded. The Underlying Index is reconstituted on a quarterly basis.

    In the most recent fiscal year, the portfolio turnover rate was 49%. The fund has approximately 21% of its assets in large companies, 54% in mid-caps, and 25% in small and micro-caps. The heaviest country in the portfolio is the U.S., followed by Japan, with other countries accounting for less than 4%.

    The top subsectors are retail REITs (22.3%), specialized REITs (20.7%), real estate management and development (14.6%), and residential REITs (13.8%). Other industries are below 8%.

    GQRE is cheaper than the U.S.-only benchmark Vanguard Real Estate ETF (VNQ) based on the price/book ratio, but it shows an inferior book value growth rate. The top 10 issuers represent 32.2% of asset value, with Simon Property Group (SPG) being the largest position at 5.22%.

    Since its inception in 2013, GQRE has significantly underperformed the U.S. benchmark VNQ, which shares more than half of its holdings. Distributions have been very irregular over the years, making it unsuitable for investors seeking a steady or growing income stream.

    In comparison to other global real estate ETFs, GQRE is the smallest and least liquid, with fewer holdings than its peers but slightly less concentration in the top holdings and a higher turnover rate. Over the last 12 months, GQRE has performed almost on par with REET, but slightly behind.