Views Article – Sharenet Wealth


Listed Property Funds: The Pro’s And Con’s

A long-held principle of investing has it that an investor’s portfolio should be diversified across three asset classes – cash (e.g. bonds or other money market investments), equities (i.e. shares), and property. This broad investment strategy is based on the premise that cash investments carry little risk, but offer lower returns. Equities, on the other hand, promise higher potential returns but carry more risk, whereas property provides a low-risk hedge against inflation, by way of capital growth.

The means by which property grows in value can be explained by way of a simple example that most individual investors will appreciate. For such investors, the property portion of their investment portfolio usually consists of the home they live in. At the time of buying their home they lock into a particular price, based loosely on the current cost of building a similar home in a similar suburb. The home purchase is usually financed by way of a bond or mortgage loan, and within a few years the monthly bond repayment is often below the cost of renting.

As the years go by homeowners are also likely to find that the market price of their home increases. This is largely because most countries experience a degree of annual cost inflation, leading property values to increase in line with the inflated cost of building those properties. Of course, this ignores the various costs associated with home ownership, such as repair and maintenance costs.  However, for many if not most people, their home is likely to be the best investment they will make during their lifetime.

This is not to say that house prices show a steady and relentless upward trend. The above scenario represents a simplified version of events, as economic cycles, interest rate changes, and political upheaval – to name but a few – can all impact upon property prices in the short term. Growth can sometimes grind to a halt for years, as occurred in the high-interest 1980s. At other times, home prices can rocket upwards as interest rates fall, a scenario that played out in South Africa in the early years of the 21st century. But, by and large, it is an unlucky homeowner who does not benefit from the long-term appreciation of his biggest asset.

Why then, as an individual investor, might you consider an investment in a listed property fund? There are a number of reasons. In the first place, you may not currently be able to afford your own home.  Secondly, many people consider a home purchase to be a matter of the heart rather than the head, so that the eventual investment value of your property may be of secondary importance. In the third place, a residential home rarely provides a regular income stream. And finally, if your home represents your only property investment, you have put all of your property eggs into one basket.

Listed Property Investments

It is possible to invest in listed property by way of the JSE’s Real Estate sector, which includes companies that invest in or manage property assets. These include Real Estate Operating and Development Companies (REODs) and Property Loan Stock Companies (PLSCs). These are not collective investment schemes, and as such will not be considered in this article.

Listed property funds (as will be discussed below) offer the individual investor a number of advantages. As collective investment schemes they are highly regulated, thereby protecting investors from losses due to fraud or embezzlement. The funds are also managed by highly qualified and experienced professional managers, who specialise in the property investment field. Thirdly, there is a greater level of transparency as performance statistics must be reported on a quarterly basis, and other issues such as fund objectives, risk/reward profile, fund benchmark, fees and charges, and fund performance over various time periods, must all be disclosed to investors and potential investors.

Another advantage is that investors can obtain access to a well diversified property portfolio for a relatively modest initial investment, or for an equally modest monthly instalment. Diversification implies more than just a wide selection of local property companies; international property investments are a feature of a number of the available JSE-listed property funds. Finally, for those investors requiring a regular income stream, all make at least bi-annual distributions, and a number make quarterly payments to unit holders.

JSE Real Estate Sector – Fund Investment Vehicles – PUTs and REITs

Property Unit Trusts (PUTs) are collective investment schemes governed by the Collective Investment Schemes Control Act (CISCA). They are required to have a financial institution as a trustee, and must be listed on a stock exchange. They are obliged to pay out all income earned in a reporting period (i.e. net income, after expenses and interest costs), with net income being taxed in the hands of unit holders. PUTs do not pay Capital Gains Tax (CGT) on the sale of properties that they hold directly. CGT is only paid by unit holders on the sale of their holdings. 

PUTs are now generally referred to as Trust REITS (Real Estate Investment Trusts). The term REIT is used to denote a particular tax structure, in terms of which income and tax liabilities are passed on to shareholders and unit holders (as described above). Most Trust REITS listed on the JSE are Corporate REITs, and as such are companies and not trusts, hence the reference to shareholders.

If this all sounds rather confusing, it is perhaps easiest to think of Trust REITs as listed companies which own physical buildings (such as shopping centres and office blocks), from which they derive rental income and which will also (hopefully) produce capital growth on the same basis as discussed in the simple home-ownership example set out earlier. Profits can also be made by Trust REITs on the sale of buildings owned. By buying units in a Trust REIT, an investor is effectively buying a share of all of the properties owned by the property management company.

Trust REITs differ from general equity unit trusts in that they are ’closed ended’. This means that the number of units stays constant, and investors can only buy units in the fund if another fund investor sells. Additional units in a Trust REIT can only be created by way of a rights issue (i.e. by way of the listed company – the corporate REIT – issuing new shares).

Historical returns

Profile’s Unit Trusts and Collective Investments Handbook (March 2016 edition, page 488) lists seven funds under the “South African – Real Estate – General” category. Of these, the Anchor BCI Property Fund was only launched in November 2015, and so does not yet have much of a track record. The Dolberg Spencer BCI Property Fund is also a relative newcomer, having been launched in July of 2013. However, it has produced an impressive compound annual growth rate (CAGR) of 17.25% over its first two years of existence.

The performances of the other, older, funds also make for interesting reading. Three have been in existence since 2005, and have produced 10-year CAGRs of 15.58%, 17.47% and 17.61% (based on a lump-sum initial investment). Although these performance figures exclude initial costs and annual fees, they also exclude the regular income payments made to unit holders.

Fund returns are calculated on a NAV – NAV basis, i.e. by measuring the difference in net asset values between one year and another. In other words, the percentage growth shown above represents the compound growth in the net value of the fund (the NAV being the value of all of the fund assets, less its liabilities, i.e. the amount it owes). On the same basis as described above, the two remaining funds have produced CAGRs of 16.58% and 18%, over 5 years and 7 years, respectively.


Although property is regarded as a low-risk investment, most property funds are rated in the medium to medium-to-high risk category, with one or two positioning themselves in the high risk bracket. Risk in this regard refers particularly to fluctuations in the fund’s net asset value, which generally does not impact on income distribution (e.g. rental incomes remain constant even though net asset values fall).  In the long run, however, the older funds have all shown an impressive growth in value.

The returns shown have not taken costs into account, and as these fluctuate quite a bit from fund to fund, any investment decision should be based on a cost-benefit analysis.  It may be a good idea to discuss any potential investment with a registered financial advisor. Fees to advisors are generally paid by the fund, and are built in to the initial charge to you. However, these may be well worth paying to ensure that you understand the differences between the various funds, and that you make the correct trade-off between risk and return.

Trust REITs are a relatively new type of fund that have largely gone below the radar. However, the impressive returns obtained by these funds suggest that they may be an attractive option for the individual investor who is looking for a regular income stream and impressive capital growth.


“Profile’s Unit Trusts and Collective Investments” (March 2016).  Published by Profile Media, Johannesburg.



AJ Cillers

AJ is an academic and a freelance financial journalist who has written for Sharenet for some 15 years. He spent 25 years as an accountant and financial manager in various South African companies before moving into academia. He has a broad range of interests, including all aspects of business and stock market investing. Apart from a bachelor’s degree in Accounting, AJ holds a Master’s degree in Financial Management. He is also a Fellow of the Chartered Institute of Management Accountants.

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