Concentrated A-REIT sector needs active managers

Active funds managers hold the key to potentially strong returns in an index-hugging Australian listed property trust securities sector, according to Lonsec's recent sector review.

Most funds in the sector are benchmarked against the ASX200 and ASX300 A-REIT (Australian real estate investment trusts) Accumulation Index, which are both largely dominated by Westfield Group (compromising more that 28 per cent of each index) and Westfield Retail (more than 10 per cent for each index), according to Lonsec senior investment analyst Sam Morris.

"Clearly, having only a small number of stocks reduces the number of clear mispricing opportunities available to be exploited by A-REIT managers, a major point against active management," he said.

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Despite this, Lonsec stated that A-REIT fund managers can take advantage of short-term mispricing opportunities because equity fund managers, hedge funds and direct retail investors are now the major shareholders in the sector.

"Each of these investor types consider different factors when investing in A-REITs. Retail investors often consider yield, equity fund managers often consider the sector a safe haven, and hedge fund managers are a mixed bag," Morris said.

The decline in broker analysts has potentially led to a more inefficient marketplace and subsequently the need for active managers, he added.

Of the 21 actively managed funds assessed in the review, Lonsec handed down highly recommended ratings to the Antares Listed Property Fund, the Cromwell Phoenix Property Securities Fund and the Legg Mason Australian Real Income Fund.

Taking top ratings in the passive space were the Vanguard Property Securities Index Fund and the Vanguard Australian Property Securities Index ETF.

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