INVESTING

How you can diversify by investing $500 in an ETF

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Investors who are looking for diversification can get a stake in a local or international property portfolio with as little as $500 through an exchange traded fund (ETF).

If you have a little more, $1000, you can buy into a local award-winning property fund via the ASX's mFund settlement service.

mFund enables you to buy unlisted managed funds through your stockbroker, eliminating the paperwork and identity checks normally associated with buying unlisted funds. However, not all brokers offer the service.

diversify etf

Real estate investing through the ASX offers you the choice of Australian real estate investment trusts (A-REITs), ETFs and mFunds. Apart from convenience, you'll also enjoy the liquidity associated with listed investments and be able to see your entire portfolio in one place.

On the downside, you'll have to pay management fees and brokerage each time you buy a parcel of securities on the ASX. (With regular managed funds you can normally avoid any upfront fees.) You will also need to put up with market volatility.

mFunds are exempt from this volatility because they are not listed.

Investing through an ETF gives you more bang for your buck. For example, SPDR S&P/ASX 200 Property (ASX: SLF) invests in the A-REITs that comprise its index.

The top three holdings are Scentre, Westfield and Stockland. Returns have averaged 15.64%pa for the three years to October 31 (ASX 200 Property index, 16.08%) and the management fee is 0.4%.

Vanguard Australian Property Securities Index ETF (VAP) - also an award winner - tracks the S&P/ASX 300 A-REIT index, and its holdings and sector allocation are virtually the same as for the SPDR fund. Returns have averaged 15.84%pa for three years (index 16.04%) and the management fee is 0.25%.

If you want to go global, SPDR Dow Jones Global Real Estate Fund (DJRE) holds 59% of its investments in the US, 9% in Japan and 7% in the UK. The Dow Jones Global Select Real Estate Securities Index is its benchmark. It launched in late 2013 and the one-year return is 26.94% (index 27.49%). The fee is 0.5%.

The APN A-REIT, which has either won or placed in Money's Best Property Securities Fund award six years in a row, is available through mFunds.

It also invests in A-REITs. The minimum investment is $1000 and returns have averaged 16.74%pa since its January 2009 inception, beating its benchmark S&P/ASX 300 Property Accumulation Index by more than 3%pa on average. The fee is 0.85%.

Investors can also access APN's Asian REIT, which invests in a portfolio of Asian REITs, through mFunds. Its biggest holding is in Japan (38%), followed by Singapore (29%), Hong Kong (11.5%) and China (10.5%).

Returns have averaged 18.18%pa since inception in July 2011, beatings its benchmark (Bloomberg Asia REIT Index) by an average 1.86%pa.

As well as the APN funds there are seven global and four local mFunds, which investors can access with a minimum of $10,000 to $30,000. Click here for a complete list of mFunds.

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Money's founding editor Pam Walkley stepped down in early 2015 after more than 15 years at the helm. Before that she was at the Australian Financial Review for 11 years, holding several key roles including news editor, chief of staff and property editor. Pam is now a senior writer for Money.
Comments
philip carman
December 12, 2015 12.15pm

The main reason for using the ETF and managed index funds that Vanguard offers is to get diversification at low cost and we applaud them for doing that job for us well. However we've recently been informed that rather than stick to their business Vanguard has chosen to actively support, via financial donations, the looney right-wing political disruptors such as Donald Trump, who are a greater threat to our security and well-being that the Vanguard funds are a benefit to our well-being. If that is true, we invite Vanguard to explain and/or publically alter that behaviour, or we will be removing our clients' funds from the Vanguard range of ETFs and managed funds and looking elsewhere to a more ethical way of achieving the same, or similar diversification. We'd appreciate Money Mag 's efforts to have Vanguard respond so that others who may share our concerns can hear their side of the story.

Joel Putland
December 22, 2015 6.30pm

Great Article- Most people don't know that Investing in ETF's (as shown above) scientifically and statistically outperforms actively managed funds 96% of the time over any 10 year period. (proven through multiple studies)

The key in today's crazy eco political global market place, is when to enter and exit the market to preserve your gains. You have to understand that most ETF's and even mutal/managed funds show a great return post the GFC (2009 and onwards), as it's simply been a massive recovery from the 2008 GFC and stock crash, you could have been blindfolded and thrown a dart at most ETF's and made great money since 2008.

The real money is what happens with the next GFC/crash. We all know it's looming, rising US interest rates are already having global impacts and with current over inflated PE ratio's, it looks like it will be 70-80% crash which will dwarf the 40-50% crash in 2008.

The key is still knowing when to sell and preserve or even buy inverse ETF's to make money from the looming decline. I not not doom and glooming here, you can make a fortune when the market turns, if you have the right information that is...

But great article to show people that ETF's are the way to go, 96% of the time they outperform any active money manager over any 10 year period, and they have small fee's of .12 to .5 on average. Saving a small 1% annual fee on your investments, translates to 10 more years of income during retirement for the average investor. small fee's big impact on your money! ETF's allow you to keep more of your money, means less for the active money managers so don't expect them to give them glowing reviews as ETF's do not pay commissions to money managers like most actively managed funds do.

Karen Haynes
January 16, 2016 11.01am

Political donations are listed online. I can't see anything from Vanguard and would find that highly unusual.

In terms of investors, "Howard Savings and Loan" and "Berkshire Hathaway Automotive" are reported to have each made a $2700 donation.