Outlook positive for AREITs
The outlook for Australian real estate investment trust (AREIT) funds has improved in Morningstar’s latest review of the sector, with six funds upgraded and improved fundamentals across the sector.
Excessively high gearing levels, unsustainably high dividends, and expensive management fees are all largely gone, with most fund managers reviewed believing that AREITs are now more conservatively-positioned and possess attractive valuations, Morningstar stated.
The review, which covers 18 individual investment strategies comprising 95.65 per cent of the sector’s total assets in Australian-offered managed funds, also found that structural changes in the wake of the global financial crisis led many managers to question the viability of the AREIT sector as a standalone asset class.
This resulted in many strategies being affected by outsourcing, the folding of some REIT teams in the broader property or equities teams and the departure of senior investment personnel, Morningstar stated.
In all there were six ratings upgrades, including the Perennial Australian Property Wholesale, which joined the Vanguard Property Securities Index as the only funds to receive the maximum ‘highly recommended’ rating.
Perennial was promoted on the basis of its strong management and the quality of their research and stock modelling, while Vanguard’s low turnover, tax-effective, and cost-effective approach made it a standout, Morningstar stated.
In other upgrades a Challenger/SG Hiscock fund, an ING fund and two APN property income funds were moved from ‘on hold’ to ‘investment grade’, and Aviva’s fund was upgraded from ‘investment grade’ to ‘recommended’.
The other ‘recommended’ funds were an APN AREIT, and funds from BlackRock, EQT/SGH, MLC and Zurich.
“We believe that there is still a place for dedicated AREIT exposure in an investment portfolio, but only a minor one,” Morningstar stated.
Morningstar suggested an AREIT allocation of no more than 5 per cent within a portfolio, and a total REIT allocation including global property of no more than 10 per cent.
Recommended for you
With an explosion of private credit managers appearing in the market, two alternatives experts believe a consolidation is needed to maintain the quality of the sector.
Bentham Asset Management has become the latest fund manager to expand its distribution team as it reports increased interest in its credit strategies.
L1 Capital, which is in talks to merge with Platinum Asset Management, has indicated it will be voting against a deal to convert a Platinum LIC into an ETF.
Evidentia Group has hired a head of quantitative investments who joins the investment firm and managed account provider from AMP.
