I’ve always liked the idea of investing in property. The promise of stable rental income and capital appreciation over time is certainly appealing, but it’s not without its drawbacks.
Mortgages and other expenses can eat away at the rental return, then there is the hassle that goes with owning a rental property. I don’t want to spend my spare time fixing broken toilets or chasing tenants for payments. Of course, I can outsource this to a managing agent, but it all chips away at the return.
However, there could be another way.
A property ETF
I’ve always been a fan of ETFs (exchange-traded funds) and have recently been thinking about ETFs as an alternative means of property investment. ETFs are funds that track an index or sector and can be bought and sold like a share through most online brokers. A property ETF could provide me with some, if not all, of the benefits of owning property myself without the hassle that goes with it.
In this case, I’ve been looking into iShares UK Property UCITS ETF GBP DIST (LSE: IUKP). This ETF aims to provide diversified exposure to UK real estate by tracking the FTSE EPRA/Nareit UK Index, with the index itself designed to track the performance of real estate companies and REITS listed on the London Stock Exchange.
I was drawn to this ETF for its good fundamentals. It’s a decent size with over £600m in assets, it has a relatively low ongoing charge, it has been going since 2007, and pays a dividend (the current dividend yield being 1.96%).
The fund is well-diversified as it holds the 40 companies listed in the index which operate in a wide variety of sectors including industrial, residential, and healthcare.
Out of the 40 companies, the largest holding at just over 20% is Segro. This is one of the largest industrial property companies in Europe and specialises in out-of-town business space. Familiar names such as Land Securities Group and British Land are also included in the fund, as is the largest UK operator of purpose-built student housing, The Unite Group.
Should I invest?
I am not sure.
Although I like the idea of property as an investment, I am already invested in a way. I own and live in a house in the UK and therefore can benefit from appreciation in house prices that way.
Also, I would plan to hold this ETF for a few years and in this case, the five-year return is more important to me. Over the last five years, the ETF has only increased by around 10%. True, it would have been paying a dividend during this time, but compared to other ETFs, this total return is just not that attractive.
For other investors, this ETF might make a lot of sense and indeed, it remains one of the most popular ETFs. It is well-diversified and allows investment in a variety of UK property sectors in a liquid way, but I don’t think this is for me right now and I will keep looking for other opportunities.