CLOSE
BACK

OUR FUNDS

CLOSE

High Conviction Property Securities Fund

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

April 2021 - Monthly REPORT

Can the strength of Industrial REITs continue?

SUMMARY

The Fund had a strong month up 5.4% compared to the Benchmark up 3.1%.  This was driven by our overweight position in logistics and residential exposed REITs such as Charter Hall Group (CHC), Centuria Capital (CNI) and Cedar Woods (CWP).

In this month’s commentary, we look at the recent strengths of Industrial REITS and provide an assessment on the likeliness of continued growth for this sector.

A recording of our recent webinar, as well as a CPD questionnaire, is available HERE.

PORTFOLIO

Top Holdings (alphabetically)

Charter Hall Group Australia Diversified REITs Charter Hall Social Infrastructure REIT Australia Specialized REITs Dexus Australia Office REITs Goodman Group Australia Industrial REITs Mirvac Group Property Trust Australia Diversified REITs

Sector Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 30 Apr 20211
1 Month1 YearSINCE INCEPTION2
Fund 5.4%29.5%15.7%
Benchmark 3.1%31.8%-2.4%
1 Month1 YearSINCE INCEPTION2
Fund
5.4%
29.5%
15.7%
Benchmark
3.1%
31.8%
-2.4%

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

The Fund had a strong month up 5.4% compared to the Benchmark up 3.1%.  This was driven by our overweight position in logistics and residential exposed REITs such as Charter Hall Group (CHC), Centuria Capital (CNI) and Cedar Woods (CWP).

Over the month, the highly anticipated Milestone portfolio of 45 logistic assets was sold for $3.8bn to ESR on a cap rate of 4%.  This transaction, in our view, sets a new benchmark for Industrial assets.  The sale highlights the strong demand for Industrial assets and suggests that re-pricing of these assets will continue. Based on average portfolio cap rates of Industrial REITs, the transaction implies significant valuation upside for the sector with a further 100 basis point of cap rate compression to be achieved.

The most leveraged exposures to the continued positive Industrial dynamics are the pure-play Industrial REITs such as Centuria Industrial REIT (CIP) with a $2.6 billion portfolio on a 4.9% cap rate.  Not only that, the positive momentum is flowing through into listed fund managers that are exposed to logistic assets such as Goodman (GMG), Charter Hall Group (CHC) and Centuria Capital (CNI) through higher management fees, performance fees and development fees.

As it stands, prime Industrial cap rates have firmed to 4.8% nationally, with Industrial cap rates now below prime Office (5.1%) and regional malls (5.3%).

So, what has driven this growth and can it be sustained?

  • COVID-19 had minimal impact on Industrial assets with rental collection and occupancy maintained at pre-COVID levels.
  • The structural shift to e-commerce, whilst hurting bricks and mortar of discretionary retail malls, is benefiting sectors such as logistics and data centres. This structural shift is expected to continue based on several retail chains in the U.S. having increased their estimate of where online penetration is likely to stabilise from 20%-30% to 40%-50%.  We see Australia following the same trend with current online penetration increasing from 11% to 20% by 2025.
  • Inventory levels have increased through on-shoring of production and a move away from just-in-time inventory, which should see continued demand for logistics space.
  • Vacancy rates for prime Industrial assets are at an all-time low at 2.5%, which indicates the strong demand for well-located assets, particularly in metro areas where there are high barriers to entry, to accommodate for e-commerce growth.
  • Cap rate spreads to funding costs remain elevated. This allows REITs and offshore buyers to deploy excess capacity to acquire assets in an earnings-accretive manner. This yield spread is also likely to favour continued equity flows for fund managers, such as CHC and GMG.

We see the strength in logistics to continue over the medium term driven by the demand from online retailing and further capital chasing the sector.  With this in mind, our process aims to pick stocks that are best-of-breed with strong management and balance sheets to enable them to fully capture growth through acquisitions and development. In a highly competitive environment for good logistics assets, we favour REITs that have development capabilities to meet their customers’ needs, such as Goodman Group that currently has a development pipeline of over $9 billion to sustain earnings growth of over 12% for the medium term.

 

PROFILE

STATISTICAL DATA

PORTFOLIO SUMMARY
NUMBER OF STOCKS
16
MAXIMUM DRAW DOWN
-15.8%

FEATURES

  • APIR CODE PCL8246AU
  • REDEMPTION PRICEA$ 1.1683
  • FEES * Management Fee: 0.70%
    Performance Fee: 15%
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 6.37m
  • 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.

EXPLORE OUR FUNDS

Harding Loevner International Fund
Harding Loevner International Fund
Axiom International Ethical Fund
Axiom International Ethical Fund
Axiom International Ethical Fund (Hedged)
Axiom International Ethical Fund (Hedged)
Australian Equities Fund
Australian Equities Fund
High Conviction Property Securities Fund
High Conviction Property Securities Fund
Global Small Companies Fund
Global Small Companies Fund
WHEB Sustainable Impact Fund
WHEB Sustainable Impact Fund
Emerging Companies Fund
Emerging Companies Fund
High Conviction Equities Fund
High Conviction Equities Fund
Pengana International Equities Limited (ASX: PIA)
Pengana International Equities Limited (ASX: PIA)
Private Equity Trust (ASX: PE1)
Private Equity Trust (ASX: PE1)
Alpha Israel Fund
Alpha Israel Fund

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.