Why your portfolio needs listed property

If I were to ask you what you thought the best-performing asset class in South Africa was over the past 10 years, what would your initial thoughts be? I’m pretty sure you would not guess that it is listed property. 

And if I was then to ask you what you thought the annualised total return on this asset class was, compared to the total return of the JSE All Share Index (Alsi), I’m sure you wouldn’t have guessed that it is 14.87% for listed property and 10.53% for the Alsi. Listed property has also significantly outperformed bonds, which showed an annualised return of 8.14% over the past 10 years. 

Historically, listed property performance has also had a relatively low correlation with the equity market, making it a good way of diversifying an investment portfolio. 

But what exactly is listed property?

The JSE SA Listed Property Index comprises the “top 20 liquid companies, by full market capitalisation, in the Real Estate Investment & Services Sector and Real Estate Investment Trusts Sector, with a primary listing on the JSE”. (See table below.)

One of the biggest reasons to have exposure to the asset class is the attractive yield (income derived from the rental of the properties) offered to investors. For example, if one was to compare the total return (price plus yield) of the index to only the price return over the last decade, one would see that on an annualised basis, the total return is almost 8 percentage points more. (See graph below.) 

To put the numbers in perspective, without taking capital appreciation into account, one would have already outperformed inflation with an investment in listed property. 

According to statistics from the Association of Savings and Investments South Africa (Asisa), the percentage of assets invested in real estate funds make up only 4% of the total assets invested in the South African collective investment schemes (CIS) industry. Even if you go back 10 years, the percentage was 3%, indicating that it hasn’t increased over the last decade, despite the good returns delivered by this asset class. 

Listed property is also a small part of the overall market cap of companies in the Alsi, and at R370bn it makes up only 5.7% of the net market cap as at 7 March 2017, according to JSE data. This could also explain why listed property is such a small percentage of the overall holdings of some of the bigger multi-asset collective investment schemes that have to comply with regulation 28 of the Pension Funds Act. 

These funds are restricted with regard to how much of each asset class they can hold overall (currently 25% of the total portfolio for listed property), but also how much they can hold of specific underlying shares. With the listed property sector being so small, it can be difficult for these bigger funds to have a more substantial holding. 

Investment options

From the above we can get a better understanding of the benefits of having listed property in one’s portfolio, as well as why most investment portfolios perhaps don’t hold enough of this sector. If we are looking to increase exposure to the asset class in a portfolio invested in collective investment schemes specifically, it can be done through a listed property CIS. Looking a bit wider, exposure can also be gained by investing in listed property exchange-traded funds (ETFs) or real estate investment trusts (REITs)/listed property shares on the JSE, of course. 

As we are all well aware, past performance is no guarantee of future returns, and listed property does need certain market conditions to perform at its best (a low interest rate environment). With the strong yield and historical capital appreciation, investors need to look at listed property carefully when constructing their portfolios and consider the benefits an investment in this asset class can bring. It can also be quite volatile over the short term, and is best suited to an investment portfolio with a longer time horizon. 

With the above in mind, and considering that most portfolios probably don’t have significant exposure to listed property (at Vista Wealth we recommend approximately 15% to 20% of the overall long-term asset allocation), it is perhaps a good idea to give it a closer look next time you review and rebalance your investment. As is always the case, it’s a good idea to speak to a financial adviser if you are unsure. 

Rupert Giessing  is a director at Vista Wealth Management, a representative under supervision of Accredinet Financial Solutions. 

This article originally appeared in the 30 March edition of finweek. Buy and download the magazine here.

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For 14 free days, you can have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today. Thereafter you will be billed R75 per month. You can cancel anytime and if you cancel within 14 days you won't be billed. 
Subscribe to News24
Rand - Dollar
Rand - Pound
Rand - Euro
Rand - Aus dollar
Rand - Yen
Brent Crude
Top 40
All Share
Resource 10
Industrial 25
Financial 15
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders