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High Conviction Property Securities Fund

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

December 2023 - Monthly REPORT

Ending 2023 on a high and outlook for the year ahead

SUMMARY

A-REITs had a strong recovery in the last quarter of 2023 to finish the year up 17.6%.  This was driven by optimism on the back of the U.S. Fed commentary that inflation and interest rates have peaked – with potential rate cuts now firmly on the horizon for 2024. Our strategy of investing in high-quality REITs with a strong balance sheet and visibility in earnings growth delivered a return of +18.10%, outperforming the benchmark by +1.20% over the 2023 calendar year.

The divergence in performance within the sector widened throughout the year. Growth stocks (GMG and HMC) and 2022-laggards (SGP and GPT) were amongst the best performers, whilst REITs with office exposure and/or high gearing (CMW, GOZ, CLW) materially underperformed.

Key contributors to the Fund’s performance include the overweight positions in NextDC Limited (NXT +52.29%) and Stockland Group (SGP +29.24%), whilst the Fund’s holdings in Qualitas Limited (QAL -13.92%) and HealthCo Healthcare and Wellness REIT (HCW -8.47%) detracted from performance.

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


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.
HealthCo REIT
Australia
Real Estate
HealthCo REIT, doing business as HealthCo Healthcare and Wellness REIT, operates as a real estate investment trust. The Company invests in hospitals, aged, child, government, life sciences, research, primary care, and wellness property assets. HealthCo Healthcare and Wellness REIT serves clients in Australia.
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 31 Dec 20231
1 MTH 1 YEAR 2 YEARS P.A. 3 YEARS P.A. SINCE INCEPTION P.A.
High Conviction Property Securities Fund 10.8% 18.1% -4.7% 5.1% 8.0%
S&P/ASX 300 A-REIT (AUD) TR Index 11.4% 16.9% -3.3% 5.9% 3.1%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

As we head into the New Year, we believe the key focus for 2024 is no longer about fighting inflation but rather balancing between inflation and growth. We anticipate ongoing divergence in performance and volatility to persist with continued geo-political risk, a slowing global economy, and service inflation remaining high. As such, stocks with a clear strategy coupled with superior earnings momentum will likely be supported.

Key themes for 2024 include:

  1. Earnings growth – As debt costs start to ease, we should see the end of earnings downgrades for the sector and potential for positive earnings revision over the medium term. We forecast average EPS growth of 3-4% over 2024.
  2. Transactions – We expect transaction markets to remain relatively subdued in 2024, although a shift in rate sentiment should see a gradual pick up towards the latter half of the year. As transaction activity picks up in 2024, asset values will find a base which should help overall sector sentiment.
  3. Strategy and capital management – 2024 will be a year where REITs have the opportunity to position themselves for the next growth phase. In the past year, REITs have been net sellers of assets as a way to deleverage and recycle capital into developments or to reposition portfolios (down weighting office). Those with access to third party capital (such as Goodman Group (GMG) or Stockland Group (SGP)) will be better placed to take advantage of opportunities to drive future growth. For example, GMG through its strong balance sheet, funds, and capital partners has expanded its data centre development pipeline adding up to $60bn in value. While SGP’s recent acquisition of Lend Lease’s 12 communities projects has extended its market share in community developments from 17% to 25%.

As we transition gradually to a more stable, or even declining, rate environment, we believe operating conditions will improve for REITs over the coming year. However, with slowing global growth and expectations of heightened volatility to persist, we remain selective and continue to favour stocks with a clear strategy to grow earnings coupled with a strong track record within the sub-sectors they operate.

PROFILE

Platform Availability

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

STATISTICAL DATA

PORTFOLIO SUMMARY
VOLATILITY3
NUMBER OF STOCKS
17
BETA4
MAXIMUM DRAW DOWN
-31.4%

FEATURES

  • APIR CODE PCL8246AU
  • REDEMPTION PRICEA$ 1.1346
  • FEES * Management Fee: 0.70%
    Performance Fee: 15%
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 18.42m
  • 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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High Conviction Property Securities Fund
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Global Small Companies Fund
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WHEB Sustainable Impact Fund
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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.