Each of these exchange-traded funds take a slightly different slant on listed real estate investment trusts, three of them focusing on Australia and one tracking global REITs. 

The stand-out offering within the domestic segment is the Vanguard Australian Property Securities Index ETF (VAP), which earns Morningstar's Gold rating.

The appeal of this product is particularly stark in the current environment, where few active fund managers with Australian real estate-focused strategies have outperformed their relative benchmarks.

Morningstar manager research analyst Donna Lopata notes this ETF aims to fully replicate the S&P/ASX 300 A-REIT Index.

"The cap-weighted benchmark is highly skewed, with just 29 constituents and its top 10 names weighing more than 85 per cent as at March 2019," Lopata says.

While two heavyweights of the Australian listed property scene dominate – Goodman Group (ASX: GMG) and Scentre Group (ASX: SCG) each hold weights of more than 15 per cent – Lopata likes that this vehicle also has some exposure at the smaller end of the scale.

Though she concedes there are inherent disadvantages in tracking an index – Goodman Group has been the subject of some concern for active managers, as has the new foreign ownership of Unibail-Rodamco-Westfield (ASX: URW) (formerly Westfield Group).

"However, we regard Vanguard's sophisticated indexing capabilities highly and see their passive equity strategy as an excellent fit for the narrow listed Australian real estate sector," Lopata says.

Trimming large-cap holdings

Also in the Australian listed property space, the VanEck Vectors Australian Property ETF (MVA) holds a Morningstar Bronze rating.

This ETF has taken a slightly different approach that seeks to minimise the S&P/ASX 200 A-REIT index's concentration, whereby more than 90 per cent of its exposure comes from just 10 companies. The two largest of these, as mentioned above, are Goodman Group and Scentre Group.

"MVA divides its stock weights more evenly, capping each individual stock at 10 per cent.
"The result is a portfolio that trims large cap holdings and boosts its mid- and small-cap names," says Lopata.

For example, MVA's Charter Hall Group holding was more than double that of the ASX 200 benchmark as of May 2019.

"Another differentiation of this ETF is its avoidance of the smaller names on the index.
"While MVA has fewer holdings than traditional passive competitors, MVA still ensures that at least 90 per cent of the investable universe will be covered in their portfolio and importantly, in a way that reduces concentration risk in the biggest names," Lopata says.

Efficient exposure, but there are cheaper options

Another offering is the SPDR S&P/ASX200 Listed Property Fund (SLF), which tracks the S&P/ASX 200 A-REIT index – a benchmark of about 20 mostly large-cap Australian-listed property companies.

"With few active managers in our A-REIT sector coverage adding more than 40 per cent active share in 2018, low-cost passive strategies like SLF are a good value proposition.

"However, while SLF’s 0.4 per cent fee compares well to higher-priced active managers, there are cheaper index options," says Lopata.

This ETF includes only 5.7 per cent weighting to small-cap companies, which is around half of the exposure tracked by competitors.

Lopata also highlights SLF is highly liquid, with high trading volumes and some of the lowest bid-ask spreads in the sector.

"There are tracking-error nuances, given SLF distributions are not reinvested but held in cash and passed on quarterly, but this also reduces dilution," she says.

"Although it’s not the cheapest option, SLF provides reasonably priced, efficient exposure to the Australia-listed property opportunity set."

Solid choice for global property exposure

For investors wanting exposure to global listed property, the Morningstar Silver-rated SPDR Dow Jones Global Real Estate Fund (DJRE) is described as "a great, low-cost option" by Morningstar manager research analyst Sarah Fox.

This fund aims to replicate the Dow Jones Global Select Real Estate Securities Index – a broad index that requires included stocks to derive 75 per cent of revenue from owning and operating property, have a market cap of at least US$200 million and meet liquidity requirements.

Fox notes that while REITS are in a strong financial position then they were before the GFC, "increasing tenant debt levels could be a headwind, particularly in a rising interest rate environment".

"Investors should understand that a passive vehicle doesn't protect against market falls," Fox says.

Given this ETF covers a global investment universe that is much wider than the Australian REIT market, active managers have a greater opportunity outperform their passive counterparts.

"Nevertheless, DJRE does its job: effectively imitating the index shown in its low tracking error since inception," Fox says.