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Property ETF 'perfect for beginners'

Jul 27 2010 13:39
Leani Wessels
Johannesburg - Property index exchange-traded fund (ETF) Proptrax is punted as an easy way for property virgins to become exposed to the property market.

Proptrax tracks the 16 listed property companies on the JSE – and is providing investors with distributions of over 8%.

Proptrax is passively managed, holding almost identical weightings as a particular index, as opposed to funds that are actively managed by a portfolio manager.

One of the advantages of Proptrax over ordinary property unit trusts is higher distributions, according to Mike Brown of

"Over time the property index as a whole outperforms equity, and being exposed to the entire counter gives investors a better spread."

According to Brown, it's a cheap, easy exposure to the sector.

However, he noted the current index is skewed towards the bigger companies as the fund is market-capitalisation weighted. Growthpoint and Redefine represent almost 40% of the R110bn counter.

Good choice for almost-pensioners

"This makes the index dependent on the performance on one or two shares," said Anton de Goede of Coronation Fund Managers.

It also means that as securities become more expensive, the index buys more, and as they become cheaper, it sells. The index's prices can then become unsustainable.

According to De Goede, the choice between Proptrax and ordinary property unit trusts boils down to whether an investor wants an active or passive fund manager.

ETFs cut out the asset manager cost of investing – a significant saving in itself. However, investment managers are paid to outperform the industry benchmark.

Actively managed unit trust funds can charge up to 2% and even higher for the skills of the fund manager.

Total expense ratios for ETFs are also lower, up to one-third of the cost of the lowest priced unit trusts, and there are no performance fees.

Mike Brown argues that over time, ETFs often provide superior performance.

The listed property sector is generally considered a must-have for the portfolios of investors nearing retirement, due to the low risk and stable income stream they can expect from distributions.




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