Q. International property has had strong returns over the last five years, should I consider an allocation to international property?

A. The short answer is yes.

The Australian listed property trust (LPT) market has experienced rapid growth due in part to the influx of funds from Australian compulsory superannuation and the rise in the number of capital raisings and takeovers. But with money continually pouring into the sector and a limited supply of high-grade investment property available, managers are looking at new investment opportunities offshore.

In the Australian market there are 36 LPTs of reasonable size compared to more than 240 property securities in the UBS Global Real Estate Investors Index.

Investors should consider an allocation to international property to diversify their investment portfolio. We expect similar long-term performance from these markets (at least within developed markets) and only moderate correlations between them - hence a diversified mix of Australian and International property may have lower risk for a similar long-term return.

Q. What is driving the demand to establish REIT structures around the world?

A. The international listed property sector has seen substantial developments over the last few years, with the most significant development being the proliferation of Real Estate Investment Trust (REIT) structures in countries around the world.

Australia first introduced LPTs in the early 1970s and is now one of the highest securitised markets in the world. As a result of the success of these markets and in an effort to promote institutional real estate investments to remain competitive in global financial markets, a number of countries throughout Europe and Asia have adopted or are planning to adopt legislation authorising the creation of REIT structures.
The introduction of REIT structures will help to meet increasing investor appetite for high income and portfolio diversification. Across the Western world, property assets have become much more institutionalised as fund management has expanded, family and government property ownership diminished, and cross-border capital flows have expanded.

The international property market is now highly accessible to Australian investors, allowing investment in multiple property sub-sectors and across multiple countries, reducing investors risk and the chance of underperformance.


Q. What are the benefits of investing in an indexed international property fund?

A. Vanguard Investments Australia manages A$1.5 billion in global property mandates and A$3.7 billion in Australian property mandates. Our parent company, Vanguard Investments Group has a long history in managing International Property Funds with over US$12.5 billion in property funds managed in the United States.

We launched our Australian domiciled International Property Securities Index Funds (in unhedged and hedged variants) in September 2005 to provide ready access to this asset class. The Funds track the UBS Global Real Estate Investors Index (ex-Australia) and aims to match index performance (excluding fund fees and expenses, and assuming net dividends are reinvested). The hedged fund is fully hedged into Australian dollars.

Indexing allows the Funds to offer a low cost way for investors to reduce risk through diversification. Foreign currency exposure can also be kept neutral with the option of hedging into Australian dollars.
The indexing approach is particularly well-suited to listed property securities, where the relatively narrow range of returns provides few opportunities for active managers to add value.

Vanguard's International Property Securities Index Fund - Fast Facts*
Index: UBS Global Real Estate Investors Index (ex-Australia)

* As at 31 March 2007