AREITs healthier but caution urged

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.