Platform Availability
AMP North, BT Panorama, Centric, Dash, Hub24, Macquarie Wrap, Mason Stevens, Netwealth, Praemium
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.
COMMENTARY
After a sustained period of falling cash rates and a low interest rate environment, the rapid rise in inflation and spiking interest rates over 2022 to 2023 had a significant impact on the performance of REITs globally. REITs were hit with a myriad of issues from rising construction costs, exacerbated by supply chain disruptions and labour shortages, to high costs of capital, which eroded earnings and constrained growth.
As the cycle turns and we move into a more stable rate environment with the expectation of cuts later this year and next, sentiment towards the sector should become more positive in terms of earnings and valuations.
Investors looking at the sector may think they have missed the boat, with A-REITs having delivered strong returns of +23.79% in the 2024 financial year and up +6.76% over the past month. Despite an easing cash rate cycle having already commenced in Canada, New Zealand, and Europe, the US Fed and the RBA have not yet cut rates. This suggests there is some further upside to come.
Looking at the relationship of how REITs perform over the past 20 years, the sector has a history of negative correlation to bond yields and interest rates, benefiting from both the plateau at the top of the interest rate cycle as well as the commencement of interest rate declines. The analysis also suggests REITs’ outperformance starts around 4 months before the first RBA rate cuts.
Transaction market activity and reported asset revaluations are at 20% to 25% discounts from their peak levels. We believe downside risk to valuation is limited from here, particularly for retail and industrial assets. However, as cost of capital remains relatively high, we are selective in our investments and prefer REITs with strong balance sheets and access to third party capital to capture growth opportunities either through acquisitions or developments.