This week, we venture back into the world of property investments. The CoreShares Proptrax SAPY invests in the 20 most liquid property companies listed in South Africa. Is this ETF your best bet for property exposure?
The Proptrax SAPY ETF only invests in companies with a minimum free float of 15%. That means at least 15% of each company’s shares must be available to buy and sell at all times. In an ETF, liquidity matters because the ETF must be able to buy and sell shares as the company’s weightings change within the index. This ETF is weighted by market capitalisation, which means it invests more in bigger companies.
Listed property companies allow investors to invest in physical properties in small chunks. Investors can buy shares in listed property companies, just like any other company. These companies use the money they raise by selling shares to buy and manage physical properties like office blocks and shopping centres.
Listed property investments are appealing to investors for two reasons. Firstly, listed property companies invest in physical assets. Should the company be mismanaged to the point of bankruptcy, those properties can be sold to pay creditors and, eventually, investors. Secondly, the types of properties in which these companies invest often earn rental income. This income is paid out to investors on a regular basis, like every quarter. While these payments are a lot like dividends, dividends are only paid out when a company is profitable. Because listed property companies receive rental income all the time, investors know they can rely on receiving these payments more often.
CoreShares offer two ETFs with exposure to the listed property market. The first is the Proptrax Ten, which we featured here. The Proptrax SAPY differs from its sister ETF in a few meaningful ways:
|Weighted by market capitalisation with a minimum free float of 15%||Equally weighted|
|TER of 0.58%||TER of 0.56%|
|Tracking error of 0.72%||Tracking error of 0.79%|
|54% invested in four biggest companies||10% invested in each company|
As we’ve discussed before, methodology matters when choosing an ETF. While the Proptrax SAPY invests in twice as many companies as the Proptrax Ten, half of your money will be invested in only four companies. If you know a lot about these companies and are confident they’ll continue to do good business over time, you might not mind very much that you are very exposed to them. If, however, you don’t consider yourself a listed property expert, the Proptrax Ten might be a better fit.
Weekly expert: Craig Gradidge
Each week, we ask an industry expert to help us understand our featured ETF. This week, our friend Craig Gradidge from Gradidge-Mahura investments digs deeper into the CoreShares Proptrax SAPY.
What sets this ETF apart from other ETFs?
There is not much that differentiates this from other ETFs that track SA listed property. The Satrix Property Index fund also tracks this index, although the Coreshares product has outperformed it. This may be due to tracking error and timing of inflows into the different products.
There are other ETFs which track listed property in South Africa, but not the J253 index. Coreshares has a Proptrax Ten ETF (PTXTEN) which invests equally in the ten biggest companies on the J253 index. The PTXTEN ETF is a smart beta product which has outperformed the J253 over most measurement periods, and since its inception in May 2011.
The portfolio has a historical yield of 5.84% as at the end of August 2016, which is low by historical standards when compared to bond yields. However, listed property yields tend to grow over time which justifies the lower yield. The lower yield is also a result of the higher exposure to offshore properties within the various holdings. Investors need to decide if they are adequately rewarded for the risks that face the South African economy in general.
What limitations should investors be aware of?
This ETF is invested solely in listed property and has no exposure to other asset classes. It is also a market cap weighted index and the top four holdings account for more than 50% of the portfolio. There is no exposure to stocks like Capco and Intu Prop which offer more direct offshore returns. The J253 is exposed mainly to the South African economy as a result, although a number of the stocks in the portfolio have meaningful offshore exposure. The inclusion of counters like Pivotal and Attacq dilute yield somewhat as these are more property development oriented stocks with little or no yield, but they only comprise 4.3% of the portfolio.
The price of the property ETFs has remained stubbornly above 0.50% level which is high for an ETF. This has an impact on the net yield to investors as well.
What type of portfolio would benefit most from holding this ETF?
This ETF is suitable for a number of different investors:
• Growth-oriented investors seeking to diversify away from equities.
• Income-oriented investors seeking income growth over time
• Investors wanting to diversify their property portfolio with an exposure to listed property
• South African retail investors are generally under-exposed to listed property as an asset class, making this an ideal option for general long term investors
Unpacking the CoreShares Proptrax SAPY
|ETF name||CoreShares Proptrax SAPY|
|Issue date||25 September 2007|
|ETF benchmark||FTSE/JSE SA Listed Property Index|
|Tax-free savings account||Investment allowed|
|ETF major holdings||View full list here.|
|Performance||1 year -1.3%
3 year +27.1%
5 year +66.5%
|What we like||This ETF is an easy way to diversify a portfolio by adding property exposure.|
*20 September 2016