Domestic property securities market too restrictive
Although most domestic property securities fund managers are managing market volatility well, the universe of stocks is far too restrictive, according to Sydney-based ratings house Adviser Edge.
Adviser Edge’s latest overview of the domestic property securities sectors awarded all 16 funds either 3.5 or four stars, describing this as “an excellent achievement in light of the most difficult market conditions seen in many years”.
The ratings house said the overview produced its narrowest range of ratings thus far, a consequence, it states, of the fund managers’ similar approaches to valuation and investment implementation based on A-REITS (LPTs), their comparable experience and resources and the fact that the short and longer-term returns for most managers were in a relatively narrow range.
Adviser Edge concluded that the market in which these funds operate is far too restrictive, with the ASX S&P 300 A-REIT Index comprising just 30 stocks and the entire Australian listed universe just 70 stocks.
“We advocate a more flexible mandate, allowing fund managers to act on their own convictions instead of being tightly restricted as is currently the practice,” Adviser Edge head of property research Louis Christopher said.
“This is particularly important in light of the Centro debacle, with a majority of managers unable to zero weight the stock and, in effect, having their hands tied.”
Christopher said the ratings firm believes the Australian Stock Exchange and Standard & Poor’s need to develop a broader index that is not so heavily influenced by a small number of stocks.
“This would be beneficial to both index and active managers, as the index is becoming more closely correlated to the broader equities market, albeit with higher levels of volatility.”
Adviser Edge awarded its highest ratings (of four stars) to BT Wholesale Property Securities Fund, Goldman Sachs JBWere Property Securities Wholesale Fund, Principal Property Securities Fund and APN Property for Income Fund No 1.
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