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Discerning, Selective and Legitimately Active

Dynamic Active Real Estate ETF (DXRE)

In today’s shifting real estate markets, not all real estate is created equal. Perhaps no one knows that better than Dynamic Portfolio Managers Maria Benavente and Tom Dicker, the management team behind the newly launched Dynamic Active Real Estate ETF (DXRE), which invests in a diversified portfolio of real estate companies in order to provide investors with a stable and inflation-protected income stream. With a management fee of just 65 basis points, DXRE delivers legitimately active management to ETF investors looking for an alternative to passive index-based products.

MARIA BENAVENTE

Vice President & Portfolio Manager

TOM DICKER

Vice President & Senior Portfolio Manager

“Despite turbulence in the real estate sector, key opportunities remain,” Benavente says. “DXRE is deliberately different; as legitimately active managers, we have the capability to potentially drive better investment outcomes."

Finding opportunity in real estate

Thanks to numerous challenges -- including higher interest rates -- the real estate sector has fallen out of favour with some investors. “From our perspective, there’s a significant focus on interest rates, but that alone can’t solve all the challenges in real estate. Now’s the opportune time to own real estate by being discerning, selective and not tied to an index,” says Dicker. While some subsectors of real estate continue to face headwinds (think office real estate), Benavente believes there’s a “significant opportunity to take advantage of the dislocation that still exists in the listed real estate securities market, which are trading at significant discounts to the broader market and also to their private estimated market values.” She also adds that many Canadian and U.S. real estate investment trusts are delivering solid yields and above-inflation growth.

Source: Citi Capital Markets Research, Bloomberg, CBRE as ofJuly 31, 2024

An actively managed, flexible mandate

Unlike passive index funds, DXRE has the unique ability to proactively adjust the portfolio. Benavente notes that “even before the world moved to work-from-home when Covid hit, we viewed the office real estate sector as highly cyclical, requiring a lot of capital and suffering from over-building. It was then that we decided to start reallocating capital and ultimately zero- weighted the sector.”

Benavente and Dicker believe the flexibility provided by active management gives DXRE an edge over passive products. Paying close attention to regional advantages and adjusting weights to key sectors -- such as retail, residential, office and specialty property types (like storage and data centres) -- can potentially lead to very successful outcomes.

DXRE: Unlike the index

Dynamic Active Real Estate ETF offers a diversified and active strategy of high-quality real estate assets constructed from a top-down and bottom-up approach. This differs from any index available today.

Where many Canadian real estate ETFs either focus solely on Canada or the global real estate universe, DXRE is deliberately different. The fund tends to have a bias toward Canada, which Benavente notes is “a very attractive real estate market – our home field advantage.” The ETF is designed to give investors the best of both worlds as portfolio construction begins from the Canadian investors’ perspective, combined with a global scope.

No shortage of opportunities

While some commercial real estate continues to struggle, Dicker and Benavente believe there are ample opportunities in a variety of areas. The data centre subsector, for instance, is booming due to an investment boom in artificial intelligence. The team views data infrastructure, data centres and cell phone towers very favourably.

Although demand has normalized and supply is somewhat elevated, Benavente and Dicker maintain that industrial REITS as a long-term story remain a positive one. “Once we have moved through short-term supply issues, we should see market rent growth reaccelerating and stabilizing, thanks to long-term trends like near-shoring and the unstoppable growth of e-commerce,” says Benavente.

What about the Canadian housing crisis? While there continues to be a shortage of housing for the near term, the lack of supply benefits apartment REITs in Canada because they are providers of affordable mid-market housing. “We believe there’s still a long runway in residential real estate today,” says Benavente. “While dislocation persists, this creates discounts. But you need to be active.”

Dicker adds that “maximizing the opportunity isn’t just about owning assets. We have to select the right property types where rent growth can be captured by the best management teams.”

REITs: "Time to Start Planting Seeds"

Want a deeper understanding of the opportunities available in the current real estate market? Listen to our latest On the Money podcast as Portfolio Managers Tom Dicker and Maria Benavente survey the market and identify key sectors they believe are poised for growth.

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