Becoming an owner of physical property involves taking on a huge amount of debt and concentration risk. Luckily it’s possible to get exposure to property as an asset class without having to go into debt and taking your chances on a single property.
The CoreShares Proptrax Ten (PTXTEN) ETF offers a fast and easy way to add property to your portfolio. Real-estate investment trust (REIT) investments are required by law to pay a chunky dividend, making this ETF a great option for those investing for income. Within the tax-free investment space this ETF is especially appealing.
Investing in the Proptrax Ten ETF
Listed property companies take the heartache out of property investments, managing tenants and maintenance and sharing the income. Different property investment companies also invest in different types of properties. Some build and manage office buildings, others develop retail spaces like malls.
Property companies use investor money to buy property and run the properties they already hold. Money earned from the property, like the rent collected or the profit on the property in case of a sale, is distributed among the company’s investors.
The CoreShares Proptrax Ten ETF invests in ten JSE-listed property companies. Each company is represented equally in the ETF, not by market capitalisation. This means you make money even when the smallest of these companies do well. As an investor, you receive a quarterly payment from the income these property companies earn.
This ETF is invested in companies that hold physical properties. Just like owning a second home or an apartment with a tenant, the properties continue to exist independently of what the market is doing. This is great, because if your share investments do poorly in the market, your property investment can continue to make you some money.
Furthermore, because it is invested in different companies that hold different types of properties in different areas around South Africa and the world, you don’t run the risk of losing all your money when a certain type of property or area becomes less popular.
You can invest what you can afford every month, saving you the trouble of borrowing money to buy physical property.
What’s the catch?
Property is an asset class on its own. It doesn’t behave like ordinary shares or even bonds. The entire asset class is very sensitive to interest rate movements. Interest rate hikes can have a negative impact on listed property and your ETF investment. Unlike ordinary shares, however, these companies continue to pay an income even when the sector struggles.
Income from real-estate investments is added to your overall annual income and taxed at your marginal rate. If you are already a high-income earner, this could result in a significant tax liability. Within your tax-free investment account, however, you can reap all the rewards and pay none of the taxes.
|ETF name||CoreShares Proptrax Ten ETF|
|ETF JSE code||PTXTEN|
|Issue date||30 May 2011|
|ETF benchmark||PropTrax Top Ten Index|
|Tax-free savings account?||Yes|
|ETF major holdings||Hyprop|
SA Corporate Real Estate Fund
Vukile Property Fund
Investec Property fund
Fortress REIT A
Fortress REIT B
|Performance||1 year; -21.1%|
3 year; -12.9%
5 year; +26.5%
*28 August 2018