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High Conviction Property Securities Fund

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

November 2023 - Monthly REPORT

Time to look forward

SUMMARY

The past year has been a challenge for the AREIT sector with rising inflation affecting bond yields and cash rates.  With inflation slowing from the peak of 8% to currently 4.6%, markets are starting to factor in a more stable interest rate environment which is supportive of the REIT sector as it impacts valuations and the cost of capital.

A-REITs had a strong rebound in November, with the index up 10.93% as Australian and US bond yields dropped in response to positive inflation prints during the month, dampening probabilities of future rate hikes.  With ‘peak rates’ now in sight, investors turned to names that have been oversold over the past year. In particular, fund managers saw the largest gains over the month, with Centuria Group (CNI +27.95%) and Charter Hall Group (CHC +19.95%) among the top performers.

The Fund returned 8.3% in November.  The main contributors to performance were Centuria Group and Stockland Group (SGP +16.67%), whilst our holding in Healthco Healthcare and Wellness REIT (HCW -3.64%) and Qualitas Limited (QAL -6.52%) detracted from performance. These two stocks were impacted due to small cap volatility, but we remain confident in their ability to grow earnings over the medium to long-term outlook. For the past 12 months rolling, the Fund returned 2.8% compared to the benchmark of 0.7%.

PORTFOLIO

Top Holdings (alphabetically)

Arena REIT
Australia
Real Estate
Arena REIT operates as a real estate investment trust. The Trust owns a portfolio in sectors such as childcare, healthcare, education and government tenanted facilities in Australia.
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.
NEXTDC Ltd
Australia
Information Technology
NEXTDC Ltd. develops data centers. The Company develops and operates carrier and systems integrator neutral data centers in Australia. NEXTDC's customers will also be able to use the data centers as connectivity and content hubs.
Scentre Group
Australia
Real Estate
Scentre Group Limited owns and operates pre-eminent living centre. The Company specializes in the management, development, construction, leasing, and retail solutions. Scentre Group serves customers in Australia.
Stockland
Australia
Real Estate
Stockland is a diversified Australian property group. The Group develops and manages Retail centers, Residential Communities and Retirement Living assets with a focus on regional centers and outer metropolitan. Stockland also owns a portfolio of Office and Industrial assets.

Sector Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 30 Nov 20231
1 MTH 1 YEAR 2 YEARS P.A. 3 YEARS P.A. SINCE INCEPTION P.A.
High Conviction Property Securities Fund 8.3% 2.8% -6.9% 2.5% 5.3%
S&P/ASX 300 A-REIT (AUD) TR Index 10.9% 0.7% -6.0% 2.3% 0.3%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

So where to from here? The sector is currently trading at an average 20%-30% discount to NTA’s (from 30-40% last month). If bond yields and the BBSW futures curve continue to fall, this could indicate the end of several years of rising interest expenses and falling valuations.

Can the gap be fully closed? We believe transactional evidence is still weak, particularly in the office sector. Positively, in the last six months industrial and small retail assets have been sold at book value. As interest rates stabilise, we expect more transactional evidence to emerge. The up and coming half-yearly reporting season will be an important one as the market will assess the health of REITs and which are best placed to take advantage of the current dislocation and have the capacity to set themselves up for the next growth cycle.

We have positioned the portfolio to invest in REITs that have a strong balance sheet to drive growth and leverage to sectors that are well-placed to benefit from a market recovery. These include Goodman Group with its $50 billion data centre development pipeline to leverage into the structural shift towards cloud computing and AI, as well as Stockland Group (residential) and Scentre Group (large retail mall) who are both beneficiaries of the anticipated population growth with over 700,000 new immigrants expected to be entering Australia over the coming years.

We remain cautious about office REITs due to the ongoing structural impact of working from home and the cyclical impact of a softer economy, which may delay the recovery in the sector even as bond yields decline.


As we move into the final month of the calendar year we will look to deliver a ‘year in review’ in early 2024. Please let us know any questions you would like us to cover, either specific to the sector, Portfolio, or any portfolio holdings below.


PROFILE

Platform Availability

  • BT Panorama
  • Hub24
  • Macquarie Wrap
  • Mason Stevens
  • Powerwrap
  • uXchange

STATISTICAL DATA

PORTFOLIO SUMMARY
VOLATILITY3
NUMBER OF STOCKS
15
BETA4
MAXIMUM DRAW DOWN
-31.4%

FEATURES

  • APIR CODE PCL8246AU
  • REDEMPTION PRICEA$ 1.0243
  • FEES * Management Fee: 0.70%
    Performance Fee: 15%
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 16.54m
  • 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. Please refer to the PDS for information regarding risks. 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.