CLOSE
BACK

OUR FUNDS

CLOSE

High Conviction Property Securities Fund

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

June 2022 - Monthly REPORT

UPCOMING EVENT

Which REITs will shine even when growth slows?

SUMMARY

The A-REIT sector fell -10.4% in June as central banks continue its tightening policy. The RBA’s 50 basis point rate hike and the continued strength in U.S. CPI (8.6%) weighed on sector sentiment.  As a comparison the Fund returned -9.8%, outperforming the index by 0.6%. The Fund benefited from an overweight position in Lifestyle Communities Ltd (LIC), SCA Property Group (SCP) and Arena REIT (ARF), whilst our weighting in Charter Hall Group (CHC) detracted from performance.

For the year to date, the sector fell -23.0% compared to the Fund that fell -27.1%.  The underperformance of 4.1% was mainly attributed to our overweight position in Centuria Capital (CNI -46.8%) and Charter Hall Group (CHC -46.4%).  Based on our valuation, both CNI and CHC are undervalued trading at FY23 PE multiples of 11x compared to their 5 year averages of 16x and 18x respectively.  As bond yield stabilises, we believe market sentiment will improve for these fund managers. Our overweight positions in SCA Property Group (SCP -4.7%) and Irongate Group (IAP +10.4%) benefited the Fund over this period.

PORTFOLIO

Top Holdings (alphabetically)

Charter Hall Group
Australia
Real Estate
Charter Hall Group invests in and develops real estate. The Company manages real estate investment funds and develops commercial, residential, and industrial properties.
Goodman Group
Australia
Real Estate
Goodman Group is an integrated industrial property group. The Group has operations in Australia, New Zealand, UK, Asia and Europe. Goodman's activities include property investment, funds management, property development and property services. The Group's property portfolio includes business parks, industrial estates, office parks and warehouse/distribution centers.
GPT Group
Australia
Real Estate
GPT Group is an active owner and manager of a diversified portfolio of Australian retail, office and industrial property assets. The Group's property portfolio include the MLC Centre, Australia Square, Rouse Hill Town Centre and Melbourne Central.
Mirvac Group Property Trust
Australia
Real Estate
Mirvac Group is an integrated, diversified Australian property group comprising an investment portfolio and a development business. The Company's investment portfolio, Mirvac Property Trust, invests in and manages office, retail and industrial assets and the development business has exposure to both residential and commercial projects.
Shopping Centres Australasia Property Group
Australia
Real Estate
Shopping Centres Australasia Property Group is a real estate investment trust owning Woolworths Group anchored shopping centres and free standing retail assets.

Sector Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 30 Jun 20221
1 MTH 1 YEAR 2 YEARS P.A. SINCE INCEPTION P.A.
High Conviction Property Securities Fund -9.8% -16.6% 4.9% 3.3%
S&P/ASX 300 A-REIT (AUD) TR Index -10.4% -11.2% 9.0% -3.2%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

The sharp rise in bond yields from 1.5% at the beginning of the year to 3.6% in June continued to create headwinds for long duration assets such as REITs With the sharp rise in interest rates, the market has reacted swiftly, pricing in 100 basis point cap rate expansion and as a result, REITs have underperformed the broader equities market by 14% year to date.

So where to from here? We believe REITs have been oversold and are looking cheap on an NTA/NAV and PE basis relative to the past 10 years.  The sector is trading on an average 20% discount to NAV, 18% discount to NTA (ex GMG & CHC), and a sharp multiple de-rating with FY23 P/E declining from 18x at the beginning of the year to 15x currently.

Arguably, the first order impact of higher rates has now played out.  The second would be a slowdown in economic activities (if policies are effective in controlling inflation).  This is the environment where REITs, through their ability to pass through inflation, should shine even when growth slows.  The main reason behind this includes:

  1. Leases are typically linked to CPI, especially for retail REITs where lease structures are typically CPI +2%
  2. Real estate has a fixed capital model unlike companies that need working capital which would erode into profits with higher inflation
  3. Real estate is a higher margin business (around 50%) so cost base inflation is less of an issue versus lower margin businesses.

 

In addition, we favour sub-sectors that have the pricing power to pass on inflation.  Currently, our preferred sectors are industrial REITs and the alternative sector such as childcare and healthcare.  Industrial REITs with sound fundamentals supported by low vacancy rates (<2% for Sydney and Melbourne) and continued demand for their product from e-commerce will be better placed to capture rental increases. In comparison, we are cautious about office REITs where vacancy and incentive levels are at record highs and are unlikely to see effective rental growth for some time.  The defensive nature of childcare and healthcare also provides a natural hedge from inflation as they are considered necessities and are less cyclical than your office, retail, and industrials.

Our Fund is well placed to hedge against inflation with 22% of the portfolio exposed to industrial REITs and 25% in the alternative sector.

PROFILE

STATISTICAL DATA

PORTFOLIO SUMMARY
NUMBER OF STOCKS
16
MAXIMUM DRAW DOWN
-27.1%

FEATURES

  • APIR CODE PCL8246AU
  • REDEMPTION PRICEA$ 1.0163
  • FEES * Management Fee: 0.70%
    Performance Fee: 15%
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 10.9m
  • 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.