With interest rates so low and expected to decline further, is the AMP Capital Global Property Securities Fund (ASX: RENT) a good option for income?
Why Property ETFs?
Exchange-traded funds, or ASX ETFs, are investment funds that are listed on a stock exchange and provide exposure to a range of shares or assets (such as property) with a single purchase.
As for property ETFs, they have a few appealing features. First, property investing can have very high capital requirements and is simply unaffordable for many investors. Property ETFs allow investors to gain exposure to real estate without a large deposit and an even larger home loan.
Second, real estate provides some protection against inflation as property prices and rent are partly driven by inflation.
Third, property ETFs or real estate investment trusts (REITs) often pay large dividends from the rental income received, so they can be attractive income investments.
AMP Capital RENT ETF
The AMP Capital Global Property Securities Fund is a partnership between BetaShares and AMP Limited (ASX: AMP).
This ETF aims to combine AMP Capital’s active management expertise and BetaShares’ ETF expertise to provide exposure to an actively managed portfolio of property companies and REITs from around the world.
The ETF attempts to outperform the FTSE EPRA/NAREIT Developed Index AUD Net TRI index.
Most of the ETF (more than 55%) is invested in North America, with around 20% in Asia and 15% in Europe. Less than 10% of the fund is invested in the Australasia region.
In terms of sectors, around 30% is invested in industrial and office REITs and around 18% in real estate holdings and developments. The remainder of the ETF is spread across retail, speciality, residential, hotel and lodging, and diversified REITs, as well as a small cash holding.
Over the last three years, the ETF has returned 8.85% per year after fees, outperforming the benchmark return of 8.32% per year. The last 12 months has been particularly strong with the ETF returning 17.74%.
The RENT ETF pays quarterly dividends. At the time of the July dividend, the annual distribution return was 2.04%.
Fees And Risks
As an actively managed fund, the RENT ETF charges a reasonably high management fee of 0.9916% per year.
The ETF is unhedged, meaning it is exposed to movements in exchange rates which could materially impact returns. The argument that property investing is a hedge against inflation is also becoming less attractive as inflation declines.
This should be classed as a strategic ETF rather than as a core part of your portfolio because there is little diversification benefit if you’re only investing in the real estate sector.
The RENT ETF has reasonably high fees, but the performance has been respectable so far and the ETF is beating its benchmark. I can see the appeal of investing in a property ETF rather than physical real estate but as far as diversification and dividend yield are concerned, I think there are better ETFs around.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclosure: At the time of writing, Max does not have a financial interest in any of the companies mentioned.