Owning a Property in Australia The Great Australian Dream

Owning a property is often described as the Great Australian Dream. However, the surge in Australian house prices has become a barrier to getting into the property market. Exchange traded funds (ETFs) provide a great avenue for investors to gain access to the property by investing in real estate investment trusts (REITs).

Investing in REITs: An Indirect Way to Own Property

REITs are an indirect way of owning property by investing in companies that own income-producing real estate across a range of sectors such as residential, commercial, and industrial. These companies can own shopping centers, office spaces, hotels, and other types of properties. By investing in REITs through ETFs, investors can gain exposure to the property market without the need to buy and manage physical properties.

Reviewing the Best Australian Property ETFs

In this article, we will review the best Australian property ETFs based on various metrics to provide our analysis on the most suitable choice for investors. Here are the categories we will cover:

Best Australian Property ETF

There are four ETFs available for investors to gain exposure to the Australian property market:

1. Vanguard Australian Property Securities Index ETF (VAP)
2. VanEck Australian Property ETF (MVA)
3. BetaShares Martin Currie Real Income Fund (Managed Fund) (RINC)
4. SPDR S&P/ASX 200 Listed Property Fund (SLF)

Size

The Vanguard Australian Property Securities Index ETF (VAP) is the largest Australian property ETF in the market with $2.5 billion in funds under management (FUM). SLF is the oldest ETF in the group, launched in 2002, and currently has $435 million in FUM. MVA has recently become the second largest property ETF with $591 million in FUM, while the actively managed RINC has only managed to attain $53 million since its launch in 2018.

Costs and Slippage

The Vanguard Australian Property Securities Index ETF (VAP) has the lowest management fee in the group, charging 0.23% per year. MVA and SLF have similar fees of 0.35% and 0.40% respectively, while the actively managed RINC charges a higher fee of 0.85%. In terms of slippage, VAP has the tightest spreads at 0.05%, while RINC has a spread of 0.42%, making its total cost of ownership more expensive at 1.27%.

| ASX CODE | COST (MANAGEMENT FEE) | BUY/SELL SPREADS (SLIPPAGE) |
|———-|———————-|——————————-|
| VAP | 0.23% | 0.05% |
| MVA | 0.35% | 0.14% |
| RINC | 0.85% | 0.42% |
| SLF | 0.40% | 0.15% |

Liquidity

One of the advantages of using ETFs to gain exposure to property is the ability to quickly buy and sell investments. VAP is the most liquid Australian property ETF, with an average daily volume of almost $5.3 million. MVA and SLF have about a fifth of the size of VAP, while RINC has less than $72,000 traded daily.

Returns

VAP has performed the best across the three time periods, confirming that 90% of active fund managers fail to outperform the market index. MVA has performed the worst over the last five years, returning 3.48% per year.

| ASX CODE | 1 YEAR TOTAL RETURN | 3 YEAR TOTAL RETURN (P.A.) | 5 YEAR TOTAL RETURN (P.A.) |
|———-|——————–|—————————|—————————-|
| VAP | 1.0% | 1.96% | 4.25% |
| MVA | -4.0% | 0.11% | 3.48% |
| RINC | -3.0% | 2.49% | 3.67% |
| SLF | 1.0% | 1.56% | 3.90% |

Track Record

SLF is the oldest ETF in the category, launching in 2002 and tracks the S&P/ASX 200 A-REIT Index. VAP is the second oldest ETF in the category but tracks the broader S&P/ASX 300 A-REIT, covering more companies in the Australian share market. MVA tracks an index constructed by a related party of VanEck and holds only 15 companies, making it more concentrated.

| ASX CODE | INDEX TRACKED | INDEX INCEPTION | ETF INCEPTION |
|———-|——————————————|—————–|—————|
| VAP | S&P/ASX 300 A-REIT TR | June 2001 | October 2010 |
| MVA | MVIS Australia A-REITs GR AUD | December 2012 | October 2013 |
| RINC | N/A | N/A | February 2018 |
| SLF | S&P/ASX 200 A-REIT TR | June 2001 | February 2002 |
| | | | |
| *Active ETF trying to outperform the S&P/ASX 200 Index |

Stockspot’s Verdict: Vanguard Australian Property Securities Index ETF (VAP)

Since introducing Stockspot themes in 2016, Stockspot has given clients the ability to add Australian property as a theme to their portfolios. The preferred ETF for this exposure is the Vanguard Australian Property Securities Index ETF (VAP). VAP has the lowest cost, largest size, and is the most liquid ETF in the Australian market. It also has a long history, solid returns, and broader diversification, making it Stockspot’s preferred choice for Australian property ETFs.

Reviewing the Best Global Property ETFs

There are two ETFs available for Australian investors to gain exposure to the global property market:

1. SPDR Dow Jones Global Real Estate ESG Fund (DJRE)
2. VanEck Vectors FTSE International Property (Hedged) ETF (REIT)

Size

DJRE, launched in November 2013, currently has $391 million in funds under management (FUM). REIT, launched in March 2019, is quickly catching up to DJRE and now manages $258 million for Australian investors.

Costs and Slippage

REIT has a lower annual management fee of 0.50% compared to DJRE’s 0.50%. Despite REIT having slightly higher slippage, its total cost of ownership is similar to DJRE.

| ASX CODE | COST (Management Fee) | BUY/SELL SPREADS (SLIPPAGE) |
|———-|———————-|——————————-|
| DJRE | 0.50% | 0.11% |
| REIT | 0.20% | 0.22% |

Liquidity

REIT has slightly higher trading volumes, averaging over $784,000 daily.

Returns

DJRE has outperformed REIT over the past year, benefiting from a falling Australian dollar against the U.S. dollar. Despite REIT not having a long-term track record as an ETF, the underlying index returns have been similar between both DJRE and REIT’s strategies.

| ASX CODE | 1 YEAR TOTAL RETURN | 3 YEAR TOTAL RETURN (P.A.) | 5 YEAR TOTAL RETURN (P.A.) |
|———-|——————–|—————————|—————————-|
| DJRE | -1.0% | 3.73% | 1.62% |
| REIT | -4.0% | -0.85% | N/A |

Track Record and Index

DJRE recently changed its tracking index in February 2022 to be more sustainability focused, weighting its companies by their environmental, social, and governance (ESG) score. However, the new index has a limited track record, launching in April 2021. REIT’s underlying index, launched in 2006, holds a larger number of companies and tracks developed markets excluding Australia. REIT is also hedged in Australian dollars, limiting currency movements against the U.S. dollar.

In terms of returns, REIT’s underlying index has performed in line with DJRE’s index over the last five years.

| ASX CODE | INDEX TRACKED | INDEX INCEPTION | ETF INCEPTION |
|———-|———————————————-|—————–|—————|
| DJRE | Dow Jones Global Select ESG RESI (AUD) | April 2021 | November 2013 |
| REIT | FTSE EPRA Nareit Developed ex Australia Rental Index AUD Hedged | December 2006 | March 2019 |
| | | | |
| On 1 February 2022 DJRE changed its index from Dow Jones Global Select Real Estate Securities Index |

Stockspot’s Verdict: VanEck Vectors FTSE International Property (Hedged) ETF (REIT)

Stockspot’s preferred global property ETF is REIT. REIT is nearly four years old and has attracted over $200 million in assets. It has a lower management fee, broader diversification, and increasing trading volumes, making it an attractive choice for investors. REIT also pays a decent dividend yield and more frequent distributions, which can help enhance income in portfolios.

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