AREIT Funds - Vanguard vs APN

It is my opinion that a great investing opportunity exists in AREITs, so I plan to start investing in AREITs.

I have just been looking at Lonsec's Australian Property Securities Funds Sector Review 2010, which interestingly is found on Vanguard's website and highly recommends Vanguard's AREIT fund, which predicatbly tracks the S&P/ASX 300 A-REIT Accumulation Index.

Strangely, Lonsec's study recommend's Vanguard's fund over the APN AREIT Fund, which is find startling given that my prima facie examination suggests that APN's fund seems superior.

One of the reasons for this, according to Lonsec, is that Vanguard, which employs passive management, offers low fees compared to those funds that employ active management: Page 7 of Lonsec's review states the following: "[A] majority of funds are still charging relatively high fees for low conviction 'active management'. This is disappointing, given that most managers hold over a third of their portfolios in the Westfield Group.... To this end, Vanguard has retained its 'Highly Recommended' rating. This rating reflects Lonsec‘s confidence in Vanguard, should advisers choose to invest in a low-cost, index fund in this asset class."

However, Vanguard's management fees that it charges for its managed fund (0.90% per annum for the first $50,000 invested) is much higher than the fees it charges for its AREIT ETF (0.34% per annum). Furthermore, APN AREIT Fund's management fees are even lower than Vanguard's (0.85% per annum where no adviser remuneration is paid) (Source, APN AREIT Fund PDS, p. 1). To top it off, Vanguard's fund pays distributions half yearly whereas the APN fund pays distributions monthly. As of 2 December 2010, the APN AREIT Fund's current yield is running at a phenomenal annualized rate of 9 per cent!
 
One of the supposes strengths of Vanguard's AREIT fund is the fact that it tracks an index. But as Lonsec pointed out in its report, this AREIT index is about 40 per cent made up of the Westfield Group. Why pay Vanguard 0.90% per year in management fees to essentially invest in Westfield? There is little diversification. APN, however, are "index unaware," which means they are not constrained by having to follow some index. This allows them to seek out value, maximize diversification, and minimize risk -- and they do all this with lower management fees.
 
I am not saying I don't like Vanguard. I believe they offer a good diversified bond fund. I am also invested in their high yield fund, although I am not satisfied with this investment as it claims to pay monthly distributions but in actual fact seems to pay zero distributions every third month. Quick calculations of the last few years of distributions received reveals that Vanguard's high yield fund only gives a running yield of about 4 or 5 per cent per annum, which is quite disappointing for a fund that is described as "high yield." This may not be the fault of the fund manager and can be blamed on market conditions, but nevertheless it certainly is disappointing for investors.