Best Property ETF: My Top 3 Aussie Property ETFs in 2021 (VAP vs MVA vs SLF)

Getting a foot into the frothy Australian property market has proved difficult in 2021. Both metropolitan and regional properties have flown off the shelf thanks to a combination of record-low interest rates, and government incentives. That’s why I’m on a mission to uncover the best property ETF.

still waiting for property prices to fall meme.

Priced out, or not interested in a direct property investment? Here’s another way.

For investors looking to carve out a slice of the Australian property pie, who’ve been priced out, or aren’t willing to commit to making a direct property investment, there is a solution.

As I’m sure you guessed, certain ASX listed ETFs provide the middle ground prospective property investors might be looking for. 

Best Property ETF: VAP vs MVA vs SLF

Vanguard’s VAP ETF, VanEcks MVA ETF, and State Streets SLF ETF are, in my opinion, the best property ETFs listed on the ASX if you’re looking for broad exposure to Aussie Property. 

All three ETFs seek to mimic the returns of similar Australian-Real Estate Investment Trust (A-REIT) Indexes. 

What is an A-REIT? 

Australian Real Estate Investment Trusts (A-REITs) provide investors with exposure to Australian commercial property without the need to purchase a physical investment property directly. Yup, I’m not kidding.

A-REITs own, and usually operate, income-producing real estate. Different A-REITs own varying classes of commercial property like shopping centres, office or a mixture! A great example of an A-REIT is Scentre Group (ASX:SCG), who own and operate all 42 Westfield shopping centres across Australia and New Zealand.

Looking for a stream of dividend income? A-REITs could be the answer. 

An A-REITs revenue is mainly generated through rental income that’s passed onto shareholders through dividends.

A-REITs pay out the majority of their income to shareholders. Hence why they’re a popular option for investors looking to generate income. Especially in a low-interest rate environment.

The consistency and quantity of dividend income you can expect from an A-REIT is highly dependent on the performance of their assets over time. If the properties aren’t performing well, there’s a risk the A-REITs management will cut, or in the worst-case pause the dividend to steady the ship.

A-REITs can also generate capital growth should the value of their property portfolio rise, or if they acquire new or refurbish existing properties.  Although, the opposite seems to be happening with retail, and office real estate given how drastically COVID-19 has impacted how we work, and shop.

Want to start climbing the property ladder? Here’s how you can invest in A-REITs Through ETFs.

32 A-REITs form part of the ASX 300 index, which means you can invest in them like you would with any other listed company. Or, you could just own all or some through ETFs.

Owning A-REITs through ETFs allows investors the flexibility to cast a wide net across the real estate sector. That way the dividend of the ETF is based on the sector’s performance, not an individual A-REIT.

Want to know more about the basics of ETFs?

Here’s a link to an investing basics article I wrote about the fundamentals of ETFs in case you need a crash course. 

If you’d like to read about VAP, MVA or SLF specifically, or if you just want my verdict, use the the links below: 

1. Vanguard Australian Property Securities Index ETF (ASX:VAP) Review

Listed in 2010, Vanguard’s VAP ETF aims to track the S&P/ASX 300 A-REIT Index. As you’d expect from any Vanguard ETF, VAP offers investors ultra low cost, passive exposure to the Australian property sector. 

VAP is the best property ETF for investors who want low fees.

With an MER (management expense ratio) of just 0.23% P.A, VAP is by far the best property ETF when it comes to cost. 

By comparison, MVA and SLF have MERs of 0.35% and 0.40% respectively. It seems VanEck has justified MVAs higher MER because its strategy is slightly active, whereas VAP is a pure play passive ETF (more on that later).

$10,000 invested in VAP would cost you..

For context, Vanguard would charge $23 for every $10,000 invested in VAP. $10,000 in either MVA or SLF would cost you $35, and $40 respectively. These fees are excluding bid/ask spread fees

Interested in diversification? VAP is the best property ETF for broad A-REIT Exposure.

VAP invests in all 32 listed A-REITs within the S&P/ASX 300. 

Compared to MVA, and SLF, which only invest in 15, and 21 A-REITs respectively, VAP offers considerably more diversification for investors seeking it. 

Sector exposure – VAP vs MVA vs SLF

VAPs added diversification is because its benchmark index includes more A-REITs than MVA or SLFs indexes. 

That means VAP is the most diversified property ETF from a sector perspective too. The table below is worth a thousand words.

As of 30 June 2021 VAPMVASLF
Diversified REITs*33.6%46.4%34.5%
Industrial  REITs27.1%10.4%28.7%
Retail REITs23.2%28.1%23.5%
Office REITs10.5%12.5%10.6%
Specialised REITs*3.4%2.5%1.7%
Residential REITs1.3%0%1.4%
Health Care REITs0.9%0%0%
Table #1 – VAP vs MVA vs SLF – sector exposure

*Diversified REITs own more than one type of property.

*Specialty REITs own properties that don’t fit within the other REIT sectors. I.e casinos, or farmland. 

 VAP key facts:

Use the table below to grab all the key facts about VAP you need to get comfortable with it!

As of 30 June 2021 VAP
ETF IssuerVanguard
Management Fee0.23% P.A.
Benchmark IndexS&P/ASX 300 A-REIT Index
Dividend Reinvestment PlanYes
Dividend Yield3.7%
Income Distribution FrequencyQuarterly
Top 10 Holding Concentration 78.3%
3Yr Return8.12%*
Return Since Inception (2009)11.09%*
Funds Under Management (FUM)$2.17Bn
Number of Holdings (ETF)32
Weighting MethodologyMarket Cap Weighted
Listed Since2010
Top 10 Holdings (highest to lowest concentration)Goodman Group, Scentre Group, Mirvac Group, Dexus/AU, Stockland, GPT Group, Charter Hall Group, Vicinity Centres, Shopping Centres Australasia Property Group, Charter Hall Long Whale REIT. 
Top 10 Holding Concentration78.3% of the total ETF holdings

*After fees, dividends are reinvested. 

Want to know more about VAP?

Check out the VAP fact sheet if you’re keen on doing some further reading on VAP.

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2. Vaneck Vectors Australian Property ETF (ASX:MVA) Review

Listed in 2013, VanEcks Australian Property ETF tracks the returns of the MVIS Australia A-REITs Index.  Unlike VAP and SLF, MVA is not a purely passive ETF because it follows a rules based approach, making it lean towards the active ETF side.

MVAs rules based methodology. What does it mean?

MVA is quite different to VAP, and SLF in terms of its investing methodology.  It applies a  rules based approach as a risk management mechanism. 

That means MVA will only invest in A-REITs that meet the following size, and liquidity criteria:

  • Market Cap of at least $US 6Bn. 
  • 3 month av. daily trading volume of at least $US 1m at a review and also at the previous 2 reviews.
  • Minimum of 250,000 shares traded every month over the previous 6 months at a review and also at the previous 2 reviews.
  • Individual company weightings capped at 10%.

MVA is much more concentrated than VAP or SLF.

Because MVA’s benchmark index excludes A-REITs that don’t meet their criteria, it only tracks the returns of 15 companies. With so few companies to track, MVA’s top 10 holdings make up a whopping 86.18% of the ETF’s underlying holdings.

I would assume MVAs higher MER is to account for the additional administration and trading costs associated with operating a more active ETF. 

MVA has been the best property ETF from a returns perspective over the past 3 years.

In terms of capital growth, property as an asset class has generally grown at a slower pace when compared to stocks. That means A-REITs returns are largely generated through dividends. 

Over the past 3 years, dividend returns have accounted for over 50% of MVAs total return, which is a combination of dividend income and capital growth. The same can be said for VAP and SLF.

MVA has generated higher returns for shareholders over the past 3 years compared to VAP and SLF.

In terms of total returns, MVA has generated higher returns for shareholders over the past 3 years compared to VAP and SLF. By default, MVA has also outperformed the S&P/ASX 300 & 200 A-REIT Indexes.

Although only slightly, MVA also has the highest 12-month trailing dividend yield when compared to VAP and SLF. 

While MVA has outperformed in recent times, it’s important to remember past performance is no guarantee of future performance. 

MVA key facts

Use the table below to grab all the key facts about MVA you need to get to know more about it.

As of June 30 2021 MVA
ETF IssuerVanEck
Management Fee0.35% P.A.
Benchmark IndexMVIS Australia A-REITs Index
Dividend Reinvestment PlanYes
Dividend Yield4.17%
Income Distribution FrequencyBi-Annual
3Yr Return9.12% *
Return Since Inception11.3%*
Funds Under Management (FUM)$550M
Number of Holdings (ETF)15
Weighting MethodologyModified Market Cap Weighted – (Individual company weightings capped at 10%)
Listed Since2013
Top Ten Holdings (Highest to lowest concentration)Goodman Group, GPT Group, Dexus/AU, Mirvac Group, Stockland, Charter Hall Group, Scentre Group, Vicinity Centres, Charter Hall Long Whale REIT, Shopping Centres Australasia Property Group.
Top Ten Holding Concentration86.18% of the total ETF holdings.
Table #3 – MVA key facts

*After fees, dividends are reinvested. 

Want to know more about MVA?

Read the MVA fact sheet if you’re keen on doing some further reading. 

3. State Street  SPDR S&P/ASX 200 Listed Property Fund (ASX:SLF) Review

Like VAP, SLF is also a market-cap weighted passive ETF. The main difference between the two is the indexes they track. 

Unlike VAP, SLF is benchmarked against the slightly more concentrated S&P/ASX 200 A-REIT Index. As per table #1, SLFs sector exposure is very similar to the likes of VAP, and MVA.

Being so similar to VAP in terms of sector exposure, and benchmark, the argument for SLF really comes down to price. Unfortunately with an MER of 0.4% compared to VAPs 0.23%, SLF seems to be fighting a losing battle. 

SLF & VAP are the best property ETFs if you’re looking for frequent dividends

Like I mentioned earlier, A-REIT ETFs are an awesome way to generate income from your portfolio because of their high dividends yields. All three ETFs have historically offered a similar dividend yield, but only SLF and VAP pay their dividends quarterly (every 3 months), whereas MVA pays its dividend twice a year.

If you’re planning to rely on those juicy dividends for an income source, having them paid quarterly makes managing your personal cash flow easier. 

Top 10 holdings make Up  85% of SLF.

Unlike VAP, SLF is benchmarked against the  S&P/ASX 200 A-REIT Index. Because the index VAP is tracking covers 100 additional smaller companies, SLF provides less exposure to small capitalisation A-REITs. 

With only 21 holdings, SLF has ten fewer holdings than VAP, and 6 more than MVA. Because SLF and VAP track market-cap weighted indexes, the constituents with larger market capitalisations account for more real estate (pun intended) in the index. That’s why SLF and VAP have the vast majority of their company weightings within the top 10. 

SLF and VAP are also different from MVA because individual holdings aren’t capped at 10% weightings. That means that Goodman Group, SLF and VAPs largest holding accounts for almost 29% of SLF, and 26% of VAP. 

SLF key facts 

Use the table below to grab all the key facts about SLF you need to get comfortable with it!

As of 30 June 2021 SLF
ETF IssuerState Street Global Advisors
Management Fee0.4% P.A.
Benchmark IndexS&P/ASX 200 A-REIT Index
Dividend Reinvestment PlanNo
Dividend Yield3.51%
Income Distribution FrequencyQuarterly
3Yr Return7.45%*
Return Since Inception6.41%*
Funds Under Management (FUM)$628M
Number of Holdings (ETF)21
Weighting MethodologyMarket Cap Weighted
Listed Since2002
Top Ten HoldingsGoodman Group, Scentre Group, Mirvac Group, Dexus/AU, Stockland, GPT Group, Charter Hall Group, Vicinity Centres, Shopping Centres Australasia Property Group, Charter Hall Long Whale REIT. 
Top Ten Holding Concentration84.53% of the total ETF holdings.
Table #4 – SLF key facts

*After fees, dividends are reinvested. 

Want to know more about SLF?

Have a read of its fact sheet here.

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Jesse’s verdict on the best property ETF – VAP vs MVA vs SLF.

For the record, I don’t own, nor plan to own any of VAP, MVA or SLF. Given I’m in the accumulation phase of my investing career, I’m focused on accumulating growth, rather than income-generating assets. That said, if I was looking to transition my portfolio towards income generation through A-REIT ETFs, VAP would be the one I’d choose.  

Why I think VAP is the best property ETF.

While MVA has generated slightly better returns, it’s less diversified and more expensive than VAP. As investors, it’s our job to focus our attention on what we can control to swing the odds in our favour. Both fees, and how well we diversify fit firmly within our circle of control. The future performance of an ETF does not. 

VAP also has the largest amount of funds under management (FUM). That means it’s likely to be more liquid, reducing bid/ask spread fees. Because VAP is over 3x larger in terms of funds under management than MVA and SLF, it’s also less likely to close down. 

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About the writer

Hi, I’m Jesse, but you can call me Jes for short. My passion is simple, I’m on a mission to make the world of investing easily understood by removing the ‘too hard basket’ stigma that surrounds it.

P.S. I’d love to meet you on Twitter: here.

Disclaimer: This website (the “The Money Pal”) is published and provided for informational and entertainment purposes only.  The information in the Blog constitutes the Content Creator’s, own opinions and it should not be regarded as financial advice. The content of this interview is the sole personal views of the interviewee.

 

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