High listed property fees justify high returns
While some Australian listed property funds have high fees of over one per cent, the funds’ performance have justified this charge, Oksana Patron finds. This is part four of the fee comparator feature.
Despite a hard few months for the Australian listed property sector, Money Management’s analysis, based on FE Analytics, found that the high fees charged by some of the funds were justified by their performance.
According to FE Analytics, the most expensive funds across the sector had delivered on their promise, based on their returns over a 12-month performance period ended 31 July 2017, where all but one sat in the top quartile of the sector.
The data found that the Crescent Diversified Property Fund, managed by Crescent Funds Management, topped the ranking with its annual fee at 1.1 per cent and was followed by The Trust Company Diversified Property and the SGH Professional Property Fund which charged 1.03 per cent and one per cent, respectively. Both Folkestone Maxim A-REIT Securities and SGH Property Income Funds charged an annual fee of 0.95 per cent.
Over the year to 31 July 2017, the Crescent Diversified Property Fund delivered returns of 3.57 per cent which placed it well above the sector’s average of -7.83 per cent.
Although the fund did not provide a specific comment with regards to its fee structure, according to its website, it is available to both retail and wholesale investors in Australia and aims to invest in property trust securities listed on the Australian Securities Exchange (ASX) as well as real properties and development opportunities.
The fund has applied the philosophy, according to which, both listed and unlisted markets are inefficient and therefore has an opportunity to generate excess returns by capitalising on these inefficiencies.
The second most expensive fund in the sector, according to FE Analytics, was The Trust Company Diversified Property with an annual fee of 1.03 per cent. The fund managed to deliver a performance above the sector’s average of -4.03 per cent for the 12 months to 31 July 2017.
According to Perpetual, which was appointed as its fund manager in July 2014, the previous fund manager had invested under a totally different investment strategy and used another investment approach, therefore all the performance information before July 2014 was not directly comparable.
The SGH Professional Property Fund was the only fund in this group which did not enter the top performance quartile, and based on its performance covering the period of 12 months to 31 July 2017, the fund returned-9.59 per cent which placed it in the second quartile.
When asked about the fund’s fee strategy, Stephen Hiscock, SG Hiscock and Company’s managing director and chair stressed that the fund should be excluded from the list as it was “really a platform fund” and therefore SGH had no control over the fund’s fee.
Money Management’s analysis only excluded master trust platforms. As the SGH Professional Property fund is available as a standalone fund they were still included in the report.
“The underlying fund is the SG Hiscock Wholesale Property Fund which has a fee of 0.78 per cent which we understand is below the average of funds, and very competitive given the fund has such a high active share,” he said.
As far as SGH’s second highest fee charging fund – the SGH Property Income Fund – was concerned, Hiscock said that it charged a fee which was only 0.09 per cent above the average fund’s fee rate in the sector which he described as “a quite small difference”.
“I am a bit surprised it is one of the “highest fee” funds given its fee is below one per cent,” he said.
“The fund has the highest active share in the sector, and with a different benchmark and portfolio to the vast majority of A-REIT [Australian real estate investment trust] funds (it is an inflation plus four per cent benchmark), we feel the fee structure is appropriate.”
According to FE Analytics, over the period of 12 months to 31 July 2017, the Maxim A-REIT Securities Fund delivered a return of -3.85 per cent which placed it in the top quartile.
Folkestone Maxim Asset Management’s managing director, Winston Sammut said: “Whilst a number of our peers claim to be “active” managers, most are considered to be index huggers. Actively managed funds tend to charge higher fees than benchmark aware funds”.
“Folkestone Maxim is a “high conviction” active manager and our fees, which are all inclusive and are considered appropriate,” he said.
“We should also point out that the Folkestone Maxim A-REIT Securities Fund has one of the lowest risk profiles of the sector.”
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