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High Conviction Property Securities Fund

Australia's only high conviction A-REIT fund with an ESG focus

February 2022 - Monthly REPORT

It’s time to add A-REITs to your portfolio

SUMMARY

The S&P/ASX 300 AREIT Index rebounded in February, delivering a return of 1.55%.  The performance was driven mainly by strength in retail REITs, which returned 7.2%.  In comparison the Fund returned -1.98%, its underweight position in retail, which had benefitted the Fund considerably , and overweight position in residential REITs, being the main causes of the under performance.

PORTFOLIO

Top Holdings (alphabetically)

Centuria Capital
Australia
Real Estate
Charter Hall Group
Australia
Real Estate
Goodman Group
Australia
Real Estate
GPT Group
Australia
Real Estate
Mirvac Group Property Trust
Australia
Real Estate

Sector Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 28 Feb 20221
1 MTH 1 YEAR 2 YEARS P.A. SINCE INCEPTION P.A.
High Conviction Property Securities Fund -2.0% 23.5% 14.5% 14.5%
S&P/ASX 300 A-REIT (AUD) TR Index 1.5% 24.9% 5.2% 5.2%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

The S&P/ASX 300 AREIT Index rebounded in February, delivering a return of 1.55%.  The performance was driven mainly by strength in retail REITs, which returned 7.2%.  In comparison the Fund returned -1.98%, its underweight position in retail, which had benefitted the Fund considerably , and overweight position in residential REITs, being the main causes of the under performance.

With increased volatility caused by geopolitical tensions and rising oil prices, defensive sectors such as REITs are starting to look attractive again.

A-REITs have been sold off as much as -8% year to date compared to the broader market of -5%, on the back of an anticipated aggressive rate hike cycle. The market is expecting the official cash rate to rise to over 2% by the end of 2023 from current levels of 0.10%.  Our views depart from consensus in that we believe inflation is more transitory due to supply chain bottlenecks and labour shortages, which will dissipate as the economy recovers from the pandemic.  All the disinflationary forces prevalent in the past decade remain – aging population, technology and globalisation.

We believe that interest rates will rise from these very low levels, but the amount and timing will be fewer and further apart, thereby supporting further investor interest in the oversold A-REIT sector.

Key takeaways from the last reporting season include:

  1. Valuations remain strong, particularly for industrial, self-storage and convenient retail. For discretionary retail and the office sector, valuations are bottoming out and improving. The sector is trading at an 8% discount to NTA (excluding fund managers such as Goodman Group (GMG), Charter Hall Group (CHC) and Centuria Capital Group (CNI)).
  2. Growing expectations of rising rental collections and improved visibility of earnings, particularly for retail REITs given the end of the rental code of conduct in NSW and VIC.
  3. Strong balance sheets, with the sector’s average gearing of 27% further supporting growth through acquisitions and developments.
  4. An improving economic back drop of record low unemployment, rising business and consumer confidence, supporting commercial property market fundamentals, lowering vacancy and fewer rental abatements.
  5. Strong earnings forecasts of over 20% for FY22 as retail rebounds from the COVID drag and fund managers such as GMG, CHC and CNI continue to upgrade earnings.

We continue to support REITs with positive free cashflow and a strong balance sheet to provide earnings growth through acquisitions and developments.  The portfolio is also leveraged to long term secular trends with over 20% exposure to healthcare, retirement living, data centres, manufactured homes estates and childcare centres, all of which offer diversification and more sustainable earnings growth.

PROFILE

STATISTICAL DATA

PORTFOLIO SUMMARY
NUMBER OF STOCKS
17
MAXIMUM DRAW DOWN
-15.8%

FEATURES

  • APIR CODE PCL8246AU
  • REDEMPTION PRICEA$ 1.252
  • FEES * Management Fee: 0.70%
    Performance Fee: 15%
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 12.37m
  • STRATEGY INCEPTION DATE 11 March 2020
  • BenchmarkS&P/ASX 300 A-REIT Total Return Index

Fund Managers

Amy Pham

Portfolio Manager

Jade Ong

Investment Specialist

Description

A Property Fund focussed on capital security, income yield, and sustainable growth.

The Fund believes each security has an underlying or intrinsic value and that securities become mispriced at times relative to their value and each other.

The Fund seeks to exploit such market inefficiencies by employing an active, value based investment style to capture the underlying cashflows generated from real estate assets and/or real estate businesses.

The Fund believes that responsible investing is important to generate long term sustainable returns. Incorporating ESG factors along-side financial measures provides a complete view of the risk/return characteristics of our property investments.

The Fund is benchmark unaware. All positions are high conviction and assessed on a risk-reward basis, resulting in a concentrated portfolio of 10-20 securities.

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1. Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. The Fund incepted on March 11th 2020.  Index performance calculations include a complete month’s performance for March 2020.  No allowance has been made for buy/sell spreads. Past performance is not a reliable indicator of future performance, the value of investments can go up and down.
2. Inception 11 March 2020.
3. Annualised standard deviation since inception.
4. Relative to S&P/ASX 300 A-REIT TotalReturn Index.
* For further information regarding fees please see the PDS available on our website.