In November 2016, CoreShares listed two new exchange traded funds (ETFs) on the JSE. Both listed vehicles track Standard and Poor’s (S&P) indices which make them the first of their kind on the South African stock exchange. The CoreShares S&P 500 ETF and our focus in this article, the CoreShares S&P Global Property ETF, provide investors access to global real-estate markets through rands. By the end of 2016, only two months after launching, the CoreShares S&P Global Property ETF already boasted 1,956 shareholders and by mid-January 2017, over R160 million in assets under management (AUM).
First JSE-listed ETF that tracks an international real estate index
The CoreShares S&P Global Property ETF is the first South African ETF that tracks an international listed real-estate index. Prior to its arrival, only ETFs that provided access to a portfolio of locally listed property shares were available. This new ETF tracks the S&P Global Property 40 index, made up (as the name suggests) of the 40 largest (by float-adjusted market capitalisation) property shares - predominantly REITs - from across the globe.
The index construction methodology doesn’t stop there, however. Additional filters are then applied to ensure that the 40 stocks chosen meet liquidity requirements of the index managers.
Further criteria include the requirement that all constituents of the fund be tradeable on developed markets. Positive earnings results must have been recorded in the most recent financial year, and the shares must all be dividend payers. A final weighting cap is then also utilised to limit any one holding to a maximum of 10% of the fund.
Source: CoreShares Global Property ETF update from January 2017
Objectives and benefits
The investment mandate therefore is to track the S&P Global Property 40 Index as closely as possible, by buying only securities found in the index and in the same weightings. Similarly, selling only occurs when shares are kicked out of the index or through corporate actions on a quarterly basis.
According to CoreShares, the benefits of the ETF include:
- Exposure to blue chip offshore property
- Accessibility (ease of transactions on the JSE via the ETF)
- Transparency (the ETF is subject to the same reporting requirements of the JSE)
- Forms an important and useful asset allocation solution
- Offers semi-annual distributions
- No prescribed fixed investment period (buy and sell when you wish)
- Rand-hedge diversification benefits
- Cost-effective investment solution (an annual fee of 0.5%)
- Good currency and share diversification across 8 developed regions around the world
The following graphic, taken from the January 2017 CoreShares presentation, shows (on the left hand side) how the market capitalisation of the underlying shares that make up the CoreShares ETF is immensely bigger than that of the local JSE property index. And again, if only compared to REITs that generate offshore earnings (right hand side), the multiple is even larger. This illustrates the increased level of exposure investing in a global property ETF like this gives to the investor.
Sectoral weightings, country composition and top ten holdings
As covered before in previous REIT article on SharenetViews, the US contains around two thirds of the global REIT market capitalisation. It is no surprise then that a half of the number of shares and the majority of the percentage weighting in the CoreShares ETF are to be found in the US (56.1%). The remaining shares are all listed in the developed markets of Japan, Hong Kong, Australia, Germany, France, the UK and China as per the illustration below:
Source: CoreShares Global Property ETF factsheet February 2017
The custodian of the fund is Societe Generale Securities Services, and the ETF is dual listed on the Johannesburg Stock Exchange as well as on the Stock Exchange of Mauritius. There are two acting market makers in Bridge Stockbrokers (on the JSE) and MCB Stockbrokers (in Mauritius) to ensure liquidity on the instrument.
The risk profile is categorised as Moderate to Aggressive (5/5) and according to CoreShares Asset Management, the total expense ratio (TER) is targeted to remain between 0.55% and 0.65%, this while charging an annual management fee of 0.5%. Distributions occur twice a year in March and September.
Finally, performance is only 5 months old - far too early to make any judgements, but should you be interested in looking at the performance of the index which the ETF tracks, click here for more information.
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.