/ 7 May 2010

Listed property: The fourth asset class

Property is often called the “fourth asset class”, joining bonds, cash and equities as an integral component of any diversified investment portfolio.

Proptrax is an exchange-traded fund (ETF) listed on the JSE that tracks the FTSE/JSE listed Property Index (SAPY). This index comprises the 17 main property unit trust and property loan stocks listed on the JSE.

Proptrax provides investors with the total return (capital plus quarterly distributions) of the key property companies making up the SAPY index, with the convenience of a single trade on the JSE providing exposure to a diversified property portfolio.

There are powerful arguments in favour of including listed property shares in any balanced portfolio. These include:

  • Performance: Property shares historically show superior performance, over time, to other asset classes. Between 2003 and 2009, listed property returned 26% per annum compared with 20% from equities.
  • Diversification: Property shares offer a strong diversification prospect as the combination of a high yield and good capital growth potential, together with relatively low correlation with other asset classes, makes the case for property as a separate asset class.
  • Income:The distributable yield of the South African listed property index, has averaged 9,5% per annum over the past eight years. This provides a significant yield premium over normal equities (which pay dividends) and matches the returns offered by local government bonds over the same period while providing capital growth.
  • Investors who reinvest such quarterly distributions, thereby capitalising this strong and regular income stream, could expect strong overall returns when compared to equities.

    Although past performance is not an indicator of future performance, R100 invested in the SA Property Index in 2002 would have been worth over R700 by the end of 2009 if all income had have been reinvested. The same R100 invested in the JSE with dividends re-invested would have been worth just over R300.

    More about Proptrax
    Proptrax is a registered collective investment scheme, also listed on the JSE as an ETF. It is managed by Property Index Tracker Managers, a company owned by Resilient Property Income Fund.

    Proptrax enables investors to own a stake in each of the top 17 listed domestic property securities on the JSE. The top 10 holdings include Growthpoint, Redefine, Pangbourne and Resilient.

    The investor in Proptrax benefits by being invested in a diversified portfolio of property counters offering an exposure to the general performance of the sector as a whole. The diversification both enhances performance and reduces risk. All income received by Proptrax, after costs, is distributed to unit holders at the end of each quarter.

    Like all ETFs, Proptrax can either be purchased from JSE member stockbrokers or through the etfSA Investor Scheme.

    The etfSA platform enables lump sum investments from as little as R1 000 and also facilitates recurring debit order investments from as little as R300. The annual management fees on etfSA have recently been lowered to 0,45% — 0,8% per year, depending on the size of the investment. etfSA clients can opt to reinvest the quarterly distributions or have them paid directly into their bank accounts.

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    Mike Brown is managing director at etfSA.co.za