FMOTY 2023: Spotlight on Australian Property
Ahead of the 2023 Fund Manager of the Year Awards on 22 June, Money Management spoke to finalists of the Australian Property Securities Fund category.
The finalists in the category are:
- Cromwell Phoenix Property Securities Fund
- Martin Currie Real Income Fund — Class A
- SGH Property Income Fund
Click here to view the full list of finalists.
Despite the difficulties in navigating a high-interest, inflationary environment, along with a high propensity for flexible work arrangements affecting traditional demand, these Australian property funds delivered strong real returns and were poised for further resilience in the next 12 months.
Stuart Cartledge, portfolio manager and managing director of Phoenix Portfolios, noted that the Cromwell Phoenix Property Securities Fund had been recommended highly by rating agencies for many years.
“[It] offers investors a somewhat unique benchmark-unaware exposure to a wide universe of property stocks. As a boutique business with a significant co-investment, we are very aligned with our investors,” he told Money Management.
“Short-term figures are strong versus peers. Longer-term numbers over 10 years and above are among the best in the market.”
According to the executive, listed property securities were highly likely to outperform direct property, “simply because they are priced much more cheaply for a very similar exposure.”
Ashton Reid, portfolio manager, real assets at Martin Currie, attributed the nomination to the firm’s 35 years of experience in the listed real asset space and the fund’s blended investments in listed REITs, infrastructure, and utilities.
“By blending listed REITs with infrastructure and utilities, we have access to a broader opportunity set and can limit individual security, sector, and industry concentration risk. We believe this has helped to provide a more stable income stream than a single sector exposure,” Reid said.
“Blending provides us with the ability to move between asset sub-sectors when valuation opportunities arise. It also allows us to focus on the real assets and reduce exposure to the less attractive components of each asset class — such as higher risk office/commercial properties, property speculators, or ESG-challenged utilities.”
Relative performance of the Martin Currie Real Income Fund — Class A had been strong and, within REITs, the portfolio was skewed towards the suburbs over CBD-based assets, he said.
The fund was optimistic for an attractive absolute return, especially for the listed property world that had been priced for higher interest rates.
Grant Berry, director and portfolio manager of A-REITs at SG Hiscock & Company, believes an added appeal of the SGH Property Income Fund could be derived from not replicating an index or being aligned to peer funds.
“The objective is to have a diversified portfolio with at least 10 individual holdings and for no individual holding to comprise more than 15 per cent of the fund,” he told Money Management.
“Delivery of income is an enduring feature, importantly with a strong rental bias. We note that the index and many competing funds have much higher proportional exposures to activities such as funds management and development.”
The fund had held up relatively well throughout the sell-off of 2022 and the firm continues to invest for the longer-term, taking a five-year view.
“Australian property is very well placed for the longer term. Recent research from CBRE has Australia’s population to grow by ~14 per cent over the years 2021–30. This is more than double the rate of USA and even more so to Europe,” Berry said.
“High population growth, a transparent investment environment, and generally favourable economic climate is positive for property investment.
“Our view is that interest rates are close to peaking, real bond yields (inflation-linked bonds) which are a key valuation input are at reasonable levels. REIT security prices have adjusted downwards over the past 12 months or so, whereas direct property has only started the process.
“The question is: do REITs reflect where direct pricing will go or have REIT prices overadjusted? Our view is somewhere in the middle, that is, direct property has some softening to go and REITs may have short-term upside.”
AUTHOR
Rhea Nath
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