While technology, telecommunications and media stocks have taken a few hits since January, equity funds sought listed property trusts (LPT) as a comparatively safe haven.
While technology, telecommunications and media stocks have taken a few hits since January, equity funds sought listed property trusts (LPT) as a comparatively safe haven.
The movement into these investments has been such that the sector has out-performed the All Ordinaries index since the beginning of the year.
According to Ausbil Dexia director Winston Sammut, this is a trend which will continue as analysts and investors re-examine technology and telecommunications stock valuations.
“There has been an increased exposure in the overall portfolio with investors buy-ing more of the leaders, since they have greater liquidity issues,” Sammut says.
“This is evidenced in the turnover for March which was $1.23 billion, or 12.8 per cent above this time last year.”
However he does emphasise that LPTs are a temporary alternative while the mar-ket seeks some balance in the new economy sectors.
“This is a parking station situation where we can expect some good inflows for three to six months before stocks settle and people are prepared to move back into them,” Sammut says.
In the meantime, he believes LPTs offer a good defensive position as well as at-tractive returns.
“Notwithstanding the potential for an interest rate rise, LPTs are seen as a sound defensive play against the current volatility in the sharemarket. They are a better alternative than cash in terms of yield.”
“The LPT sector is trading at an estimated 8.7 per cent discount to fair value and a 5.3 per cent premium to NTA with a sector yield of 8.4 per cent. That is attractive in the current environment.”
At the same time the LPT index outperformed the All Ordinaries by two per cent with commercial once again leading the trust sectors.
Trusts to make the most of this buoyancy include Darling Park Trust up 4.3 per cent, Paladin Commercial Trust up 3.7 per cent and Macquarie Office Trust up 3.4 per cent.
According to Sammut these performance were assisted by the bond rally in the first part of this year and firming rental markets in the Sydney and Melbourne business districts.
“There are a number of new properties coming on stream with supply and demand becoming tighter which is tied into the general buoyancy of the economy. Com-mercial property is also being affected for these reasons as well,” Sammut says.
“However retail still has a question mark over it, as it is linked to interest rates. Any rise and consumers will be less likely to shop which is a major issue for retail-ers.”
Yet the way ahead for LPTs is still cloudy as the revision of the ASX Indices has seen some trusts fall out of the index and now face a battle to return to the fold.
“There are about 60 companies in the ASX LPT index. There are 37 trusts in the new ASX 200 Index. The challenge for the ex-ASX 200 trusts is, via mergers or acquisitions, to increase their market capitalisation to a point which will lift them into the new index,” Sammut says.
“There will be more rationalisation of this sector which offers opportunities for in-vestors. A number of trusts with sound value and attractive yields have been over-sold simply because they are no longer in the index.”
