he JSE has introduced three new indices in the FTSE/JSE Property Index series: the FTSE/JSE Tradeable Property Index, FTSE/JSE All Property Index and   the FTSE/JSE SA Real Estate Investment Trust (REIT) Index. These complement the existing sector offering, the Real Estate Development and Services Indices, and FTSE/JSE Real Estate Investment Trust Indices.

Nathan Jardine, Head of Sales and Business Development at the JSE, says ‘the new indices provide clients and the market with exposure to the various segments of the listed property market. Further, these new indices provide the market with a tradeable index that has an added liquidity screening and a benchmark index, which includes all property companies in the FTSE/JSE All Share – making it a better reflection of the entire sector’.

According to Jardine, listed property has evolved as a distinct asset class. ‘Providing a benchmark that is more representative of the full available market results in a healthier investment landscape as managers can benchmark against indices that are more reflective of their mandates.

‘The tradeable index helps to promote passive investing, whether it be through exchange traded funds, unit trusts, structured products or derivatives. This is a growing segment of the investment world globally, and having good indices allows product issuers to bring new products to market rapidly – aligned with their own customers’ needs. Also, property funds tend to be high-yield – REITs have to pay out earnings – so property tracking funds can be a useful addition to a tax-free savings account.’

Jardine notes that, importantly, two of the three new indices (with the exception of the SA REIT Index) include inward-listed companies. The FTSE/JSE SA Listed Property Index (SAPY), by comparison, had primary listing on the JSE as a requirement. Furthermore, constituents in the new indices are capped at 15% to prevent future concentration issues, and ‘none of the indices have a fixed number of constituents – the SAPY is the top 20 – which is less artificial and reduces quarterly churn or turnover’.

He says the indices were introduced because of market demand for a comprehensive benchmark and tradeable index. In addition, the SA REITs index offers exposure to locally domiciled REITs only, to prevent the dilution of yield from lower-yielding foreign listings. This translates to a tool for investors who wish to focus on a property portfolio with an SA and yield bias.

‘A conundrum with the SAPY was that the definition of “South African property” was becoming increasingly blurry. Was this JSE-listed property? Or physical property in South Africa? Or a fund with a management team in South Africa? The market was looking for a benchmark that included the full investable opportunity set available on the JSE, hence the decision to include secondary listings,’ says Jardine.

‘Investors were also using the SAPY as both a benchmark and a tradeable index. Different categories of index users have different needs and cannot necessarily be satisfied with the same set of rules. Separate benchmark and tradeable indices allow both market segments to be serviced more effectively.’

An extra benefit of having a specific tradeable property index, is that it allows the JSE to list a derivative contract – offering an additional kind of exposure to investors. While only one index is tradeable, the JSE could provide tradeable sector indices as custom ones through FTSE Russell, or introduce them in the future.

‘With this increased choice of broad benchmark indices – a product-focused tradeable index and a specialist SA REIT index – users can pick the index that is best suited to their own investment needs.’

By Hilton Tarrant
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