Let’s take a dive into how VAP invests and whether it is a good way to gain exposure into Australian real estate.
VAP is an ETF that invests in Australian real estate investment trusts (REITs).
A REIT is a business that invests in real estate. There are many different types of REITs and it is common for a REIT to focus on one type of real estate such as retail spaces, office spaces, farmland or warehouses.
Breakdown of VAP holdings
VAP has $2.169 billion invested in 32 different Australian REITs. Some of its top 10 holdings are Goodman Group (ASX: GMG), Scentre Group (ASX: SCG), Mirvac Group (ASX: MGR) and Stockland Corporations Ltd (ASX: SGP).
When looking at the sector allocation break down of the REITs, VAP holds 32.8% diversified, 28.8% industrial, 22.6% retail, 10% office, 4.4% specialised and just 1.2% residential.
What are the fees?
The annual fee for VAP is 0.23%. To put that into context, if an investor had $5,000 invested for one year then VAP would take $11.50 in fees. This is not the lowest, but it is still within the lower end of the range when it comes to ETF costs.
It is really important to think about fees when investing as high fees really can take a chunk out of investment returns. Compounding can work amazingly for an investor, but also against an investor when it comes to fees.
VAP has a yield of 3.7% and pays quarterly in January, April, July and October every year.
Is VAP a good way to invest in Australian real estate?
Buying property is a large financial commitment and often takes a long time to save up a deposit. Additionally there is no diversification in dropping a lot of cash on just one investment property, not to mention the often high associated costs.
REITs take that hurdle away of a large financial entry requirement whilst providing instant diversification. VAP takes it one step further on the diversification front by investing in 32 different REITs.
Over the past year VAP has returned a total of 33.43% (after fees) which is reflective of the intense property price growth many areas of Australia have experienced over the 2020 to 2021 period.
Any reasons to give it a miss?
Whilst the last year has been bonkers for VAP and Australian property, VAP hasn’t had ground breaking returns when we look beyond the last year.
When looking at the last 5 years VAP has returned an average of 5.16% per year after fees. Year to year returns saw 2020 producing a gross loss of 3.72%.
There have been better performing ETFs out there if property isn’t the focus.
If an investor is looking for that concentrated exposure to the Australian property market without having to focus a large amount of wealth into just one investment property, then I think VAP makes a compelling choice.
However, if consistent total returns are the goal and exposure to Aussie real estate isn’t a focus then I think there are some lower cost and potentially higher returning ETFs that would be worth having a look at.
I wouldn’t suggest this ETF be an investors only holding, but it has potential to be a complimentary part of a portfolio.