Catch this insight by Intellidex on the Sygnia-Itrix global property ETF. The Sygnia-Itrix global property ETF tracks the S&P Global Property 40 Index which contains 40 leading global REITs This ETF suits investors seeking exposure to global property companies. It can also be used as a building block for an income strategy or simply as a rand hedge.
Intellidex Insight: We consider property to be a must-have element of a balanced portfolio. While property investments share similarities with general equities, they add a nice income and diversification flavour to a portfolio. Because of the more resilient cash flow, real estate investment trusts (Reits) tend to be less volatile than general equities. They also tend to pay higher and more reliable dividends because they generate high and consistent cash flows and are obligated to pay out a certain percentage of their taxable income to retain the Reit status.
The Sygnia-Itrix Global Property ETF’s value proposition is that it has an aggressively low total expense ratio (TER) of 0.19% that significantly undercuts its competitors, whose charges range from 0.29% to 0.69%. The fund is also efficient at replicating the risk and return characteristics of its specified benchmark.
While it is a global property fund, it is largely US-centric with more than 60% of its holdings in the US. However, it compensates for this lack of geographical diversification by spreading its funds across property sectors. While most local Reits concentrate on the office, industrial and retail sectors, Sygnia-Itrix Global Property ETF has its hand in about eight sectors, including health care and residential
Fund description: The Sygnia-Itrix global property ETF tracks the S&P Global Property 40 Index which contains 40 leading global REITs. Constituents are weighted based on their market capitalisations and capped at a weight of 10% each.
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Sygnia-Itrix Global Property ETF
Top Holdings: The top 10 holdings constitute 41.2% of the fund. Due to the 10% weight cap the fund is relatively well diversified across individual counters. The largest stock accounts for less than 7% of the fund.
Suitability: This ETF suits investors seeking exposure to global property companies. It can also be used as a building block for an income strategy or simply as a rand hedge.
Historical performance: While still a young fund, its performance has been impressive: it’s one-year return of 12.4% is streets ahead of the JSE all share index’s 7.81%. Most of the growth, however, was due to currency effects.
Source: July 2019 fact sheets
Fundamentals: Property values respond to interest rate levels and economic activity. As interest rates rise, interest payments on property owners’ loans follow suit, which means they have less cash flow available for dividends. Also, the rising cost of borrowing suppresses property prices, diminishing their appeal as income providers.
Global interest rates are trending downwards which is a boon for this fund. However, the global economy is expected to slow down on the back of geopolitical tensions and protectionist measures. The trade disputes between the US and China have left markets in a rather chilling condition, forcing analysts to forecast a further economic slide.
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Sygnia-Itrix Global Property ETF
For JSE-listed global ETFs, the rand-dollar dynamics play a major role. The rand has been on the back foot over the past few months amid a beleaguered South African economy and rising political tensions. If the currency continues on that trajectory, this fund will benefit.
Fund statistics:
Alternatives: There are two other global property ETFs listed on the JSE. One is the CoreShares Global Property ETF (total expense ratio: 0.69%) which has a similar investment approach to the Sygnia fund. The other is the Stanlib Global REIT Index Feeder ETF (now 1nvest) (TER: 0.34%) which is not limited to the top 40 global REITs but tracks global real estate companies and REITs generally.
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Sygnia-Itrix Global Property ETF
Background: Exchange-traded funds (ETFs)
Exchange-traded funds (ETFs) are passively managed investment funds that track the performance of a basket of pre-determined assets. They are traded the same way as shares and the main difference is that whereas one share gives exposure to one company, an ETF gives exposure to numerous companies in a single transaction. ETFs can be traded through your broker in the same way as shares, say, on the Easy Equities platform. In addition, they qualify for the tax-free savings account, where both capital and income gains accumulate tax free.
Benefits of ETFs
- Gain instant exposure to various underlying shares or bonds in one transaction
- They diversify risk because a single ETF holds various shares
- They are cost-effective
- They are liquid – it is usually easy to find a buyer or seller and they trade just like shares
- High transparency through daily published index constituents
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