South African investors looking for opportunities in the current world of low yield should consider global property funds as part of their portfolios.
This is the outlook of Ursula Maritz, Chief Investment officer at Southern Charter, who says that the good performance of these funds is expected to continue throughout the course of the rest of 2013 and that the Southern Charter funds are well exposed to this sector.
Maritz says although the global listed property market as a whole isn’t cheap, it isn’t at a premium to Net Asset Value, unlike in 2008, and there are of plenty of regional opportunities.
“Currently offshore property, which is a well diversified asset class, offers yields of around 4.5% which is far more attractive than 10 year bonds yields in most major developed countries and should attract investor flows in their search for yield,” she says.
Furthermore, Maritz says fundamentals are supportive of the sector. “Balance sheets have improved as most companies have reduced their leverage. Funding costs are low and there is funding around for quality assets, from pension funds to sovereign wealth funds, in their search for yield. In addition, the supply of property in the major regions is tight as many projects were cancelled due to the 2008-2009 financial crisis. Because of this, annual completion of projects is far below historic averages.”
“Local property should also do well in 2013. However; it is unlikely to repeat the 35.9% return of 2012. Returns are more likely to be in the region of 12%-15%,” she says.
According to Maritz, this will be supported by distribution growth of around 6.5% as well as capital growth driven by the market’s positive correlation to bond yields, which are likely to rally off the back of foreign demand for local bonds. “Foreigners, year to date, have already bought R17.7bn of local bonds and this looks set to continue given low yields globally. We have even seen Japanese investors into our market as Japan’s new Prime Minister, Shinzo Abe’s, aggressive new approach to Japan’s decades of deflation (dubbed “Abeconomics”) takes effect,” she says.
Local bond yields have fallen from 7.5% to 6.9% under the impact of foreign demand, pushing the property index up by 8.2% since January 2013.
According to Maritz, the flow of funds into property unit trust is also supporting the market.
Maritz advises investors that there are numerous ways through which South African investors can access listed global property investments. These include local unit trusts which are feeder funds into offshore unit trusts, direct offshore unit trust and direct offshore REITS.