Wall Street Journal – Jun 2016

A New ETF Bets on Brazil’s Real Estate

Fund is off to a promising start, up almost 12% this year

The real-estate market in Brazil has been under pressure from the recession there.
The real-estate market in Brazil has been under pressure from the recession there. Photo: iStockphoto/Getty Images

For those who think there is money to be made in Latin American real estate, the early returns of a new exchange-traded fund are promising.

Tierra Funds launched the Tierra XP Latin America Real Estate ETF (LARE) in December. The fund tracks the Solactive Latin American Real Estate Index, which comprises 56 stocks listed in the region, primarily in Brazil and Mexico.

The fund is up almost 12% since the start of the year, and has net assets of just under $2.9 million. About half its investments are in real-estate investment trusts, which have holdings in income-producing property like malls and industrial parks, and are required to pay out a periodic dividend. The remainder is concentrated in real-estate operating companies, which are similar to REITs, though they aren’t required to pay a dividend and can invest in a broader range of companies. The fund also invests in an array of other real-estate-focused companies, from construction firms and home builders to related services.

The real-estate market in Brazil has been under pressure due to the recession there, says Jamie Anderson, managing principal of Tierra Funds. Still, he is optimistic, despite the country’s economic travails and the political turmoil surrounding the impeachment of President Dilma Rousseff. Mr. Anderson figures that the economy could turn a corner this year, particularly if the political situation stabilizes, and that there could well be a cut in interest rates, which would benefit the property market.

“Brazil is going to be an unpredictable, challenging environment, but we believe that the broader trend is up, or at least we’re at a point where we’re going to consolidate for a while,” he says.

The fund’s second major focus is Mexico, which has a “very vibrant commercial real-estate industry,” Mr. Anderson says. However, the real-estate market there is similar to the U.S., he says: It’s much more stable than Brazil, “but the returns are going to be lower.” Elsewhere, he sees opportunities in the Andean region, particularly Peru and Colombia.

Mr. Cowan is a writer in London. He can be reached at reports@wsj.com.