In days of yore, a property investment involved an immovable collection of bricks and all the concentration risk of a physical thing in a physical place. It also required an enormous amount of capital or debt upfront. The introduction of listed property made it possible to benefit from property investments without the capital outlay and risk associated with a single property investment. Exchange-traded funds (ETFs) that invested in nothing but property made it possible to invest in multiple real estate investment trusts (REITs) at a low cost.
If you invested in a local REIT ETF in the last two years or so, however, you might suspect the golden age of property investments has come and gone. Certainly local property ETFs have been on a steady slide to current levels since January 2018, as this performance chart of the CoreShares SA Property ETF illustrates.
The performance of a property ETF is dependent on the demand for rental property, office and retail space and storage needs in the economies in which the properties are situated. The type of property investment that does well varies depending on the economic situation in the region. If all the property companies in South Africa invested in commercial office blocks, for example, all companies will be affected when there’s a lesser demand for office space rentals. In a struggling economy, small businesses tend to fail, which lowers the demand for retail space. However, demand for low-cost housing might increase during tough economic conditions.
Many South African investors still favour property investments over equities. Knowing each property investment involves a building and land that has value in the real world can be comforting, especially in uncertain economic times. The beauty of the investment world as we know it is that diversification can be achieved at low cost across economies. This brings us to the 1nvest Global REIT Index Feeder ETF (ETFGRE).
Tip: Not sure what a feeder fund is? We explain it here.
Under the hood of this ETF lies the world’s property. It invests in 472 companies across the globe, including a smattering of emerging market exposure. Your investment will reach properties in the USA, Japan, the UK, Singapore, Australia, Canada, France, Hong Kong and Belgium. The types of properties are as diverse as the countries in which they are situated. Your investment will go towards industrial properties, data centres, self-storage locations, residential properties, healthcare buildings, retail properties and office space.
Like all other investments, this ETF also suffered the consequences of the COVID crash. However, its diversified nature bodes well for future earnings.
Tip: Property ETFs tend to pay more dividends than ordinary ETFs. However, due to the nature of these payments, they are not considered dividends for tax purposes. Read more about it here.
This ETF pays dividends four times per year and is available in tax-free savings accounts.
|ETF name||1nvest Global REIT|
|Issue date||14 March 2018|
|Total investment cost||0.68%|
|ETF Benchmark||FTSE EPRA/NAREIT Global REIT Index|
|Tax-free savings account||Investment allowed|
|ETF major holdings||Download the full list here.|
|Performance 1 year||-7.5%|
|Performance since listing||+23.6%|