Is the Vanguard Australian Property Securities Index ETF (VAP) a good investment?

The Vanguard Australian Property Securities Index ETF (ASX: VAP) has a number of appealing qualities as an exchange-traded fund (ETF). But, is it a good buy today?

For readers who don’t know, Vanguard is one of the world’s largest fund managers, with several trillion (US) dollars under management. An ETF allows us to buy a basket of shares (or other assets) in a single investment.

The VAP ETF looks to invest in property businesses within the S&P/ASX 300 Index (ASX: XKO). Let’s look at some of the positives.

Diversification

There are many different types of commercial property including industrial, office, retail, healthcare and social, storage units, farmland and hotels.

Within the VAP ETF are a total of 33 different ASX shares, with each of these businesses owning a property portfolio.

Looking at the holdings, these are some of the biggest positions: Goodman Group (ASX: GMG), Scentre Group (ASX: SCG), Stockland Corporation Ltd (ASX: SGP), GPT Group (ASX: GPT), Mirvac Group (ASX: MGR), Dexus (ASX: DXS), Vicinity Centres (ASX: VCX), Charter Hall Group (ASX: CHC) and National Storage REIT (ASX: NSR).

Vanguard said around a third of the VAP ETF is allocated to industrial real estate investment trusts (REITs), just over a quarter is focused on ‘diversified’ REITs and retail REITs make up another quarter. The other types of REITs account for the rest of the portfolio.

Low management fees

One of the most attractive elements of investing in a Vanguard ETF is the low management fee, which helps reduce leakage of the portfolio’s value. Some active managers can charge a lot more, putting a dent in the wealth-building efforts.

While it’s not the cheapest Vanguard ETF around, the VAP ETF does have a low annual cost of 0.23%.

Good tailwinds

Vanguard Australian Property Securities Index ETF is invested in a range of businesses that have appealing tailwinds.

Australia’s population continues to grow, which means more potential customers at shopping centres, and it creates indirect demand for more logistics.

More people in the country require more housing, which is good for businesses like Mirvac and Stockland. There should also be more overall demand for storage units, farmland, healthcare, and so on.

Interest rates are currently high, which is painful for the cost of debt, and has caused a share price decline for a number of the names within the VAP ETF portfolio. However, if/when interest rate cuts do occur, that could prove to be a catalyst for share prices to go higher.

Foolish takeaway

The VAP ETF is a great way to invest in the Australian commercial property market if you want exposure to the whole sector, or if you’re not sure which name(s) you want to own.

It has a decent record of producing returns – the total return over the past decade has been an average of 9.3%, with passive income making up a significant part of that return.

However, I’d suggest this isn’t likely to be the sort of investment that achieves a high rate of compounding capital returns.

In my eyes, there are other ASX shares that could deliver stronger growth. Rental growth is normally fairly low, while some companies can be capable of quick national (or global) expansion.

The post Is the Vanguard Australian Property Securities Index ETF (VAP) a good investment? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goodman Group. The Motley Fool Australia has recommended Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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