Momentum swings behind property

Retail investors are returning to the property market, with inflows soaring to £376.6m in October, far exceeding the previous month’s £261m total, according to IMA figures.

Property funds have had positive net retail sales for seven consecutive months, with property the top-selling net retail sector for the first time in over two years in October. By contrast in November and December last year, property was the lowest-selling sector.

This has coincided with a revival in property fund performance, with the average fund in the IMA Property sector returning 19.8% over 12 months to 23 November, according to Morningstar.

This is a significant improvement compared to the three-year view, which shows an average decline of 33.6%.

Swip has four funds in the IMA Property sector. Two of the four – Multi-Manager Global Real Estate Securities and UK Real Estate – have generated returns higher than 35% in the last year, up 45.9% and 37.4% respectively.

Chris Bamberry’s Swip UK Real Estate fund is managed by combining Swip’s equity team with the skills and experience of the firm’s real estate team.

Bamberry says: “We have a view that share prices of UK real estate securities in the long term reflect the underlying real estate markets.

“Therefore, our research is focused on identifying and investing in companies who have both exposure to growing areas of the UK real estate market and a management team who have the skills and experience to consistently create value for shareholders.”

He notes following the gains in recent months, UK real estate shares ran out of steam during September, as investors became concerned the sector was starting to look overvalued.

The manager says: “Questions remain over the sustainability of a recovery, given it is positive investor sentiment – rather than strong fundamentals – which is driving the underlying property market.

“Restricted bank lending and weakness in the occupier markets remain concerns for investors and continue to put the brakes on a full recovery.”

CLS Holdings provided the largest boost to fund performance in September, rising almost 20% during the month. On the flipside, lack of exposure to Invista Foundation Property Trust was the largest drag on relative performance.

Three of Aviva Investors property funds have struggled, with Property Investment, Property Trust and Asia Pacific Property ranked 32nd, 33rd and 34th out of the 36 vehicles in the sector over 12 months, down 11.2%, 14.4% and 26.9% respectively.

However, Global Property – Aviva’s fourth fund in the sector – is up 55.5% over twelve months.
Global Property has a 32.8% weighting in the US, 14.6% in Hong Kong and 11.6% in Australia at 31 October.

Manager Paul Van de Vaart says although the fund’s Japanese holdings detracted from performance in October, this was outweighed by positive contributions from the US and France.

In the US, the fund’s underweight position and positive stock selection had a strong positive contribution.

He says: “Overall, we believe the Reit market is well placed to deliver strong returns over the medium to long term, and we continue to focus on companies with relatively secure income profiles.”

Listed property markets fell in October on mixed economic data. All regions, except Asia ex Japan and the UK, declined during the month in local currency terms.

In Asia, performance varied across the region, with positive performance in China, Hong Kong and Singapore while the Japanese and Australian property markets declined.

Andrew Nicholas’ First State Asian Property Securities and First State Global Property Securities funds have gained 49.1% and 49.5% over the last year.

First State Asian Property Securities has a 41.7% weighting in Greater China; 23.5% in Japan and 22.7% in Australasia at 31 October.

Nicholas says the holding China Resources Land (Hong Kong: Residential) outperformed in October following positive news about land purchases.

On the negative side, Westfield Group (Australia: Retail) underperformed due to what Nicholas calls “a surprise fall in US consumer confidence.”

The manager bought Hang Lung Group (Hong Kong: Diversified) to increase exposure to the Chinese retail sector, and sold Tokyu Reit (Japan: Diversified) due to concerns about the sustainability of its earnings profile.

He says: “We are positive about Chinese developers as government stimulus measures are flowing through to the property market.

“In Singapore, our strategy remains to invest in those Singapore Reits with good management track records, investment grade portfolios and low re-financing risk.

“We remain cautious on many Hong Kong Reits given the generally poor quality of their management and corporate governance.”

First State Global Property Securities has a 49.1% weighting in North America, 20.5% in Asia Pacific ex Japan and 14.9% in Europe ex UK at 31 October.

Nicholas says the Reit holding Unibail-Rodamco performed strongly over the month as it announced better-than-expected earnings, and the Australian retail Reit Westfield underperformed along with the rest of the Australian-listed property market.

He bought Equity Residential, a US multifamily owner and operator, and sold the US retail Reit Kimco Realty due to its “rich valuation and relatively high gearing”.

Nicholas says: “The conditions that promoted the strong rally in property securities remain in place: stabilisation of economies, stronger rents and a better financing outlook.

“The positive GDP figures in the US are likely to boost consumer confidence and could further stimulate consumption and growth.”

Launched in January 2007, Andrew Jackson’s Standard Life Investments Global Reit fund is ranked second over the year, up 57.8%.

Jackson says he took advantage of market movements in the third quarter ending 30 September, and actively traded high-beta companies, citing Macerich in particular.

In the latter part of the quarter, he took profits in US office Reits and recycled proceeds into Digital Realty and Public Storage.

He increased the fund’s exposure to several hotel companies, as revenues per available room looked to be stabilising, initiating a position in Starwood Hotels and adding to Host Hotels and Resorts.

With the US retail environment showing signs of slight improvement, he initiated a position in Tanger Factory Outlets, a defensive retail name.

In the UK, the manager reduced Hammerson and British Land on valuation concerns and used some proceeds to initiate a position in West End office market specialist Derwent London.

In Europe, he added to ProLogis European Properties and Unibail Rodamco and reduced the fund’s Asian exposure, exiting Shui On Land, where he saw no catalysts for performance, and adding to Sun Hung Kai and Henderson Land Development.

Jackson says: “Our exposure to Brazil was again a consistently positive contributor, as was stock selection in the UK and US.

Looking ahead he says: “Listed property remains volatile as equity markets continue to be driven by day-to-day newsflow.

“However, we expect further strong performance from the listed sector as signs of the debt crisis abate and the global economy recovers.”

Categories: Property Investment

Tags: Standard life investments | Ima | Swip | First state investments | Gdp | Aviva investors | Commercial property | Morningstar