Just a few months ago, the South African Listed Property index [JSE:J253] let the market down, due to losses from the well-known Resilient stable. Fortunately, the index has already regained some of its losses, and there could be room for more improvement. In this article, we will take a deeper look at the JSAPY index to understand the different characteristics of the index to help an investor make an informed decision when choosing among property shares.
In a previous article we had a look at exactly what portion of the Top40 Index’s earnings are generated offshore. This time, we split the JSAPY index into companies with more than 50% of their income generated offshore (Offshore Index) and companies with more than 50% income generated locally (Local Index). The Local Index contains shares such as EMI, SAC and RDF whereas the Offshore Index contains shares such as NRP, EPP and MSP.
On average, the Offshore Index comprised approximately 25% of the JSAPY index over the past year, leaving the majority of the JSAPY index locally-orientated. From the PE and DY figures in the table it can be seen that, compared to the Offshore Index, the Local Index is more value-driven, delivering a higher dividend yield and lower PE ratio. Over the past three years, the Local Index has been dominant with regards to performance, while the offshore index has lost most of its gains due to the tumble caused by the Resilient stable.
So, what does all this mean? Firstly, a stock with a higher dividend yield should provide more of its returns in the form of dividends than a stock with a lower dividend yield, which generates relatively more of its returns from capital gains. Stocks that have higher dividend yields tend to exhibit less volatility due to dividends not being directly determined by demand and supply in the market but are paid out in the form of income. The lower volatility figure for the Local Index can be seen in the table.
Why not diversify your portfolio with listed property shares? You can choose to include property shares that derive their income locally or from foreign investments, or both! Contact our Dealing Desk at Sharenet Securities today.
Joani van Wyk
Joani van Wyk joined the asset management team in January 2017, responsible for quantitative research of equities across all industries. Joani completed her degree in Mathematical Science in 2015, as well as an Honours degree in Financial Risk Management in 2016, both at the University of Stellenbosch. She is currently a CFA candidate.