Vanguard moves into global property

Vanguard Investments Australia has launched two new international property index funds aimed primarily at risk reduction, rather than return enhancement.

Vanguard International Properties Securities Index Fund will try to match the performance of the UBS Global Real Estate Investors Index ex-Australia, currently producing a yield of 6.4 per cent.

It is being offered in a hedged and an unhedged version.

“We think institutional investors might be more interested in the unhedged fund because they may already have currency overlays in place themselves, so they’ll make a decision about how they want to do the hedging,” Vanguard Investments managing director Jeremy Duffield explained.

Chief investment officer Eric Smith said while the index is weighted towards the more mature US market, it is poised to take advantage of new trusts emerging in Europe and Asia.

The driving force behind the launch was a view that the domestic property market presented limited opportunities. Global property also allows local investors to reduce the risk of their portfolio because of the low correlation Australian listed properties have with their overseas equivalents, according to Vanguard.

The funds will target investors who are seeking rental income streams. This is reflected in the fund’s portfolio, which includes a 30 per cent allocation to offices, 27 per cent to the retail sector and 12 per cent to the residential space.

A 0.4 per cent management fee is charged for each fund, an expense Vanguard feels is approximately half the cost of fees charged by actively managed property funds, which typically charge around 75 basis points.

Both funds have a minimum initial investment level of $500,000 and will be available to wholesale investors first.