An Exchange-Traded Fund (ETF) is a listed security on a stock exchange like the JSE. It would typically track an index, either already established or one that is created or customised for the purposes of the ETF. For example, the customised index may include a composite index that blends 50% of an equity index and 50% of a bond index.
Whatever the index of choice, ETFs trade like ordinary shares, experiencing price volatility as buyers and sellers bid and offer for a share of the respective ETF (effectively a share of the underlying basket of listed instruments contained in the ETF).
It has become a fantastic way to own a diversified range of equity in listed companies and often at a compelling price point too.
This article outlines the 6 property-focused ETFs that one can buy and own on the JSE today.
Why would one consider purchasing a property ETF?
There are good reasons for buying both direct physical property and listed property in the form of REITs (Real Estate Investment Trusts), unit trusts or ETFs. Last year (2017), I dedicated two articles to some of the reasons why listed property ownership may be preferred over direct property, and both articles can be found below:
1) Should I Buy Listed Property or Physical Property? Part 1
2) Should I Buy Listed Property or Physical Property? Part 2
In summary the main points included:
- The Managed Listed Property option results in an objective, full-time investment team looking after the portfolio from an investment management point of view.
- As an extension to the previous point, day-to-day administration and maintenance of the underlying physical properties are not the shareholders’ responsibility.
- It is in the majority of cases, less costly to acquire ownership of a REIT, property unit trust or ETF, as a single share can be purchased, whereas buying directly involves additional costly items including transfer duties, estate agent fees and very often bond registration and associated borrowing costs.
- Improved liquidity (in theory) as shares can be bought and sold within seconds if there are willing buyers and sellers in the market.
- Listed property ownership, especially unit trusts and ETFs, offer good diversification benefits over ownership of a single REIT or direct property, where often there are only one type of real estate, for example residential or exclusively office rental properties making up a portfolio.
What property ETFs are there on the JSE?
Picking stocks can be a tricky, and determining which REITs to add to a well-diversified share portfolio adds to the complexity, as REIT valuations are approached differently to the way one would say, look at a bank or retailer. (For some more insight on how to value a REIT, read this: How to value a REIT)
Over the next month we will be taking a closer look at the ETFs available to South Africans through a JSE listing. The following table lists the options that we will be working through, highlighting one each week.
Investment Specialist at Discovery Invest
Mark graduated with a Business Science Degree from the University of Cape Town in 2007. He then joined Sharenet, during which time he also completed his B.Com Honours through UNISA. Mark has helped to build, launch and manage derivative and share trading brokerage businesses. He is also a JSE Registered Securities Trader, and has worked on the trading desk at Sharenet. After seven-and-a-half years at Sharenet Mark then moved to Reitway Global (a specialist Global Listed Property Fund Manager) where his passion for property was further kindled. Mark currently works for Discovery Invest as an Investment Specialist on their Investec Managed fund offering. He has over ten years of experience in the equity and asset management sector and can be reached at: firstname.lastname@example.org
The views and opinions (where expressed) in this article are those of the author and do not necessarily reflect the official policy or position of Discovery Invest.