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High Conviction Property Securities Fund

A high conviction A-REIT fund with an ESG focus

December 2024 - Monthly REPORT

A-REITs turning the corner as interest rate cuts commence

SUMMARY

A-REITs outperformed again in 2024. For the year, the sector is up +17.6%, outperforming the broader market by +6.2% (S&P/ASX 300). The Fund delivered a strong return of +19.4%, outperforming the benchmark by +1.8% for the year.

PORTFOLIO

Top Holdings (alphabetically)

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.
Ingenia Communities Group
Australia
Real Estate
Ingenia Communities Group engages in managing and developing a portfolio of retirement and lifestyle communities. It operates through the following segments: Lifestyle Development, Lifestyle Rental, Ingenia Gardens, Ingenia Holidays; Fuel, Food & Beverage Services, and Corporate and Other. The Lifestyle Development segment comprises development and sale of lifestyle homes. The Lifestyle Development segment refers to long-term accommodation within lifestyle and rental communities. The Ingenia Gardens is involved in rental villages. The Ingenia Holidays segment is composed of tourism and rental accommodation within holiday parks. The Fuel, Food & Beverage Services segment is associated with the Group's investment in service station and food & beverage operations adjoined to Ingenia Holiday communities. The Corporate and Other segment relates to the Group's remaining assets and operating activities. The company was founded on November 22, 2003, and is headquartered in Sydney, Australia.
National Storage REIT
Australia
Real Estate
National Storage REIT engages in providing self-storage and tailoring self-storage solutions to residential and commercial customers. It offers spans self-storage, business storage, records management, climate-controlled wine storage, vehicle storage, vehicle and trailer hire, packaging, insurance and other value-added services. The company was founded in December 2013 and is headquartered in Brisbane, 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 2024 1
1 MTH 1 YEAR 2 YEARS P.A. 3 YEARS P.A. SINCE INCEPTION P.A.
High Conviction Property Securities Fund -5.5% 19.4% 18.7% 2.7% 10.3%
S&P/ASX 300 A-REIT (AUD) TR Index -5.8% 17.6% 17.2% 3.2% 6.0%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

This is now the second year in a row that A-REITs have outperformed the broader equities market, with the sector up +17.2%pa over the last two years, outperforming the broader market by +5.5%pa. Typically, there is an inverse relationship between A-REIT performance and 10-year bond yields, however this has broken down recently, with the sector holding up well despite higher bond yields. Expectations of future interest rate cuts have been a key driver of this performance.

A-REITs also outperformed global REITs.  Global developed market REITs returned +8.8% in 2024 (FTSE EPRA/NAREIT Index), with Australia a top performer (+10.6%) ahead of the US (+7.9%).  There was a wide dispersion in returns, with the UK (-11.6%), Hong Kong (-10.8%) and Singapore (-8.3%) underperforming.

Similar to 2023, the outperformance of the A-REIT sector was driven by a few stocks – HMC Capital (HMC), Goodman Group (GMG), Charter Hall Group (CHC), Scentre Group (SCG) and Stockland (SGP).  This highlights the importance of stock picking. Despite the strong sector performance during the year, most stocks underperformed both the sector and the broader market.  Out of the top 5 performing stocks, the Fund held 4 stocks during the year – namely GMG, CHC, SCG and SGP.  This drove the outperformance of the Fund over the benchmark for the year.

Looking ahead – key drivers for REITs in 2025:

  1. Rate cuts – The outperformance of the sector in 2023 and 2024 was largely driven by the expectation for lower yields and rates. Market expectations are for the first rate cut by May 2025 and only three cuts over 2025. This should have a positive impact on asset valuations and debt costs.  With fund managers having run hard in anticipation of a more active transaction environment, we believe residential developers could be bigger beneficiaries from here with clearer evidence of rate cuts.
  2. Value versus growth/quality – Growth/quality have been clear winners, with value stocks, particularly passive REITs, having lagged. As rates have stabilised and are starting to come down, this should provide some relief to NTA and FFO.  However, in order for valuation gaps to be closed, it will require evidence of more inorganic growth such as M&A activity. With more large cap REITs adopting funds management strategies, the ability to execute should ultimately determine valuation differentials.
  3. Index composition – With GMG now 41.5% of the A-REIT index, and the outlook for GMG’s operating EPS growth still strong, it will put more pressure on other REITs to stay relevant.  We see this as an opportunity for consolidation, particularly for smaller passive REITs that have been oversold.
  4. Transactions begin to rebound as investors return to the market.  Direct property transactions totalled $22bn across 204 deals in 2024.  This was an increase of 42% since 2023 levels.  Encouragingly, it indicates that valuations appear to have troughed during the year, and confidence is returning to the market despite continued volatility in interest rates.

Looking ahead, we are positive on the outlook for the A-REIT sector over 2025, particularly for select fund managers and the residential sector, as the rate cut cycle begins.

PROFILE

Platform Availability

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

STATISTICAL DATA

PORTFOLIO SUMMARY
VOLATILITY 3
20.9%
NUMBER OF STOCKS
13
BETA 4
0.72
MAXIMUM DRAW DOWN
-31.4%

FEATURES

  • APIR CODE PCL8246AU
  • REDEMPTION PRICEA$ 1.3022
  • FEES * Management Fee: 0.70%
    Performance Fee: 15%
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 21.04m
  • 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

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Axiom International Fund
Axiom International Fund
Axiom International Fund (Hedged)
Axiom International 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)
Pengana Global Private Credit Trust (ASX:PCX)
Pengana Global Private Credit Trust (ASX:PCX)
Alpha Israel Fund
Alpha Israel Fund
Pengana Diversified Private Credit Fund
Pengana Diversified Private Credit 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. 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.