The fundamentals of Australian real estate investment trusts (AREITs) are much healthier in 2011 than they were in previous years, but not all investors should re-enter the market, according to ‘Morningstars analyst John Valtwies.
The AREIT sector’s peak-to-trough decline of -71.08 per cent between January 2008 and December 2010 was worse than any other asset class, including emerging markets and Australian small-cap resources stocks. However, Valtwies saw AREITs again starting to attract investor interest as the yields hit 6-7 per cent.
"As with any investment, though, it is important to consider an individual’s investment objectives; for income-seekers, a small exposure to this sector is probably a sensible call, but if growth is a more important part of the equation, investors should be looking elsewhere," he said.
Of the 83 large-cap Australian share strategies, Morningstar currently covers only one – Goldman Sachs – is currently overweight the AREIT sector.
Head of Australian equities at Goldman Sachs Don Hershan re-entered the sector ahead of his peers, but does not own all the stocks and believes there is still a wide gap separating quality attributes such as assets and management.
Meanwhile, Russell Investments research found Australian institutions – which usually set trends for retail investors – currently allocate 9.7 per cent of their investment portfolios to property (largely Australia-focused) and are intending to increase this to 10.5 per cent in two years.
