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).
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. For example, they could own things like shopping centres (e.g. Westfield), office spaces (e.g. Dexus) and hotels (e.g. Marriott and Hilton).
Stockspot reviews and compares the more than 250 ASX listed ETFs in our annual Stockspot ETF Report. In this article, we road test the best Australian and global property ETFs across a range of different metrics to provide our analysis on the most suitable choice
In this ETF review, we take a look at the following categories:
Best Australian property ETF
There are four ETFs available for investors to gain exposure to Australian property:
- Vanguard Australian Property Securities Index ETF (VAP)
- VanEck Australian Property ETF (MVA)
- BetaShares Martin Currie Real Income Fund (Managed Fund) (RINC)
- 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 Australian market with almost $2.9 billion in funds under management (FUM). SLF, launched in 2002, is the oldest ETF in the group, and currently has almost $500 million in FUM. It recently lost the second biggest property ETF title to MVA which has amassed $584 million in FUM while the actively managed RINC has only managed to attain $56 million after launching in 2018.
Costs and slippage
The Vanguard Australian Property Securities Index ETF (VAP) is the lowest cost in the group charging 0.23% in management fees per year. MVA and SLF are both similar charging 0.35% and 0.40% respectively, while the actively managed RINC charges almost quadruple the cost of VAP, with a fee of 0.85%. The spreads on VAP are the tightest, charging 0.04% whereas RINC’s 0.36% means its total cost of ownership is quite expensive at 1.21%.
| ASX CODE | COST (MANAGEMENT FEE) | BUY/SELL SPREADS (SLIPPAGE) |
| VAP | 0.23% | 0.04% |
| MVA | 0.35% | 0.11% |
| RINC | 0.85% | 0.36% |
| SLF | 0.40% | 0.14% |
Liquidity
One of the key advantages of using an ETF to gain exposure to property is the ability to quickly buy and sell your investments. You don’t have to wait weeks or months to finalise a property transaction or settlement, as ETFs trade freely on the share market every business day.
VAP is by far the most liquid Australian property ETF, trading almost $7.4 million in average daily volume. MVA is over 3 times smaller, trading $2 million daily, while SLF and RINC have a daily trade volume of $823,000 and $104,000 respectively.
Returns
VAP has performed the best across the three time periods, this further confirms that 90% of active fund managers fail to outperform the market index. RINC has performed the worst over the last five years, returning 3.4% per year.
| ASX CODE | 1 YEAR TOTAL RETURN | 3 YEAR TOTAL RETURN (P.A.) | 5 YEAR TOTAL RETURN (P.A.) |
| VAP | 13.4% | 10.3% | 5.9% |
| MVA | 5.5% | 7.2% | 3.8% |
| RINC | 3.0% | 7.1% | 3.4% |
| SLF | 16.4% | 10.1% | 5.6% |
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 is more concentrated, only holding 15 companies.
| 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 |
Stockspot’s verdict
Since we introduced Stockspot themes in 2016 we’ve given clients the ability to add Australian property as a theme to their Stockspot portfolio and we prefer the Vanguard Australian Property Securities Index ETF (VAP) for this exposure. VAP has the lowest cost, largest size, and is the most liquid ETF in the Australian market. It’s also got a long history, solid returns and broader diversification, which, all combined, makes it our preferred choice.
Best global property ETF
There are two ETFs available for Australian investors to gain exposure to global property:
- SPDR Dow Jones Global Real Estate ESG Fund (DJRE)
- VanEck Vectors FTSE International Property (Hedged) ETF (REIT)
Size
DJRE had the first-mover advantage, launched on the ASX in November 2013 and currently has $420 million in FUM. REIT, which launched in March 2019, is quickly catching DJRE and now manages almost $303 million for Australian investors.
Costs and slippage
REIT has a lower annual management fee of 0.20% compared to DJRE’s 0.50%. Despite REITs slightly higher slippage, they have recently lowered their spread, enabling them to ensure the total cost of owning REIT is almost 50% less than DJRE
| ASX CODE | COST (Management Fee) | BUY/SELL SPREADS (SLIPPAGE) |
| DJRE | 0.50% | 0.11% |
| REIT | 0.20% | 0.17% |
Liquidity
REIT has slightly higher trading volumes, averaging over $696,000 daily.
Returns
DJRE has outperformed REIT over the past year. Given its unhedged nature it has benefited from a falling Australian dollar against the U.S. dollar. Notably DJRE has a higher allocation to retail and residential sectors compared to REIT.
| ASX CODE | 1 YEAR TOTAL RETURN | 3 YEAR TOTAL RETURN (P.A.) | 5 YEAR TOTAL RETURN (P.A.) |
| DJRE | 4.9% | 6.2% | 1.8% |
| REIT | -1.8% | -0.8% | N/A |
REIT pays a decent dividend yield of 4.5% per year and does so via quarterly distributions. DJRE is also yielding 2.8% per year and pays distributions half-yearly. The hedged nature of REIT provides more consistent and smoother distributions for investors too.
Track record and index
DJRE recently changed its tracking index in February 2022 to be more sustainability focused meaning it weights its companies by their environmental, social and governance (ESG) score. However, the new index which it will now track has a limited track record only launching in April 2021.
REIT’s underlying index has a longer track record having been launched in 2006. It holds a larger number of companies (more than 341 holdings vs DJRE’s 253 companies) and tracks developed markets (such as the U.S., Europe and Japan) excluding Australia. It provides broad geographical diversification for global exposure. REIT is also hedged in Australian dollars which limits the 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 returning 2.0% p.a. and 3.6% p.a. respectively.
| ASX CODE | INDEX TRACKED | INDEX INCEPTION | ETF INCEPTION | Index 5 year return p.a. |
| DJRE | Dow Jones Global Select ESG RESI (AUD)* | April 2021 | November 2013 | 1.81% |
| REIT | FTSE EPRA Nareit Developed ex Australia Rental Index AUD Hedged | December 2006 | March 2019 | -1.0% |
Stockspot’s verdict
Stockspot’s preferred ETF is currently REIT, which is replacing DJRE as our global property theme in 2022. REIT is now nearly four years old and has attracted over $200 million of assets. Its lower management fee, broader diversification and increasing trading volumes are attractive reasons for being our preferred global property ETF choice. REIT also pays a decent dividend yield and more frequent distributions which can help investors enhance income in their portfolios.
