## Sub-Sector Concentration Risk in Real Estate ETFs
**Introduction**
Real estate exchange-traded funds (ETFs) offer investors a convenient and diversified way to invest in the property market. However, it is important to be aware of the potential risks associated with these investments, including sub-sector concentration risk.
**What is Sub-Sector Concentration Risk?**
Sub-sector concentration risk refers to the risk that an ETF may have a large allocation to a particular sub-sector of the real estate market. For example, an ETF may have a large exposure to residential properties or commercial properties.
This concentration can increase the volatility of the ETF’s returns, as the performance of a particular sub-sector can fluctuate significantly. For example, if the residential real estate market experiences a downturn, an ETF with a large allocation to residential properties may suffer disproportionately.
**How to Assess Sub-Sector Concentration Risk**
Investors can assess the sub-sector concentration risk of an ETF by examining its portfolio holdings. The ETF’s prospectus will typically disclose the percentage of the portfolio that is invested in each sub-sector.
It is important to consider both the overall concentration of the ETF’s portfolio and the concentration within each sub-sector. For example, an ETF may have a moderate overall concentration, but it may have a high concentration within a specific sub-sector, such as office properties.
**Managing Sub-Sector Concentration Risk**
Investors can manage the sub-sector concentration risk in their real estate ETF portfolio by diversifying their investments across multiple ETFs. This will help to reduce the impact of any one sub-sector on the overall portfolio’s performance.
It is also important to consider the investment objectives of each ETF when assessing sub-sector concentration risk. For example, an ETF that tracks the performance of the broad real estate market may have a higher level of sub-sector concentration than an ETF that tracks a specific sub-sector, such as residential properties.
**Conclusion**
Sub-sector concentration risk is an important factor to consider when investing in real estate ETFs. By understanding this risk and taking steps to manage it, investors can reduce the volatility of their returns and improve the overall performance of their real estate ETF portfolio.