The CoreShares Proptrax SAPY (PTXSPY) invests in the 20 most liquid property companies listed in South Africa. 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.
In South Africa, real estate investment trusts (REITs) are required by law to pay 75% of rental income to shareholders. Property ETFs like the PTXSPY, which invest in these companies, are therefore attractive to those who rely on their investments for income. Income is paid to investors quarterly, similar to a dividend payment.
Getting income from a property investment feels a lot like getting a dividend payment. However, income from property investments is added to personal income and taxed at marginal rates. Since dividend withholding tax is only 20%, tax on REIT income will likely be higher. For that reason, it’s a good idea to consider property ETFs for tax-free investment accounts.
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.
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%|
|57.3% 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, more than 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.
Tip: In this video, Stanlib’s Keillen Ndlovu explains why he thinks great property companies are cheap at the moment.
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.
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.
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 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 -14%|
3 year -22.6%
5 year +5.7%
10 year +76.9%
|What we like||This ETF is an easy way to diversify a portfolio by adding property exposure.|