BlackRock has launched the first exchange-traded fund (ETF) that is an effective substitute for physical real estate.

The new fund – iShares MSCI Target US Real Estate UCTIS ETF – has been designed to achieve a risk and return profile that is similar to physical real estate, while preserving the liquidity and ease of access of a real estate investment trust (REIT).

Investors traditionally access real estate through the private market or through listed real estate companies such REITs.

Tom Fekete, head of product development for iShares in EMEA, said there is no other product like this in the market.

"Real estate is one of the most popular alternative asset classes for European investors but initial charges and transaction costs can be high," he said.

"Our new fund is designed to provide simple, cost-effective and liquid access to listed real estate with a risk and return profile closer to that of physical real estate."

There is nothing like this on the market today and we see potential to expand the range to other regional property markets."

The underlying index is widely diversified, both across regions within the United States and across sectors and it follows a three-step process.

To reduce volatility, the index gives higher weightings to less volatile stocks and it is deleveraged to manage the effect of the leverage REITs typically employ.

The index is also combined with short-term, inflation-linked government bonds to provide inflation protection.

The fund is physically replicating and has a total expense ratio of 0.4%.

"We believe the fund will appeal to a range of professional investors as an additional tool for accessing real estate and diversifying their portfolio, and to real estate managers as a short-term alternative to holding cash," said Tom Fekete.

The index is designed for use by both smaller asset owners, which are not large enough to build a diversified real estate portfolio, and larger investors aiming to quickly build or reduce exposure to the underlying asset class.

First published 15.01.2015

Lindsay.sharman@wilmington.co.uk