July Performance Update

Posted by Simon Karlsson on Aug 2, 2019, 11:55:07 AM

 

In June, a deteriorating global growth outlook continues to push both the cash rate and global bond yields lower. This has driven a flight to defensive sectors such as A-REITs and infrastructure, given their historical high correlation. As a result, brokers continue to upgrade many of these defensive names given the lower risk free rate used in their valuation models. Meanwhile, domestic headwinds continue to intensify. The Australian housing market remains sluggish and lending restrictions are tight, whilst inflation and wages growth is anaemic. In an attempt to stimulate the economy, the RBA cut official interest rates to a record low 1% during the month.

 Key Figures

Investment Performance as at 30 June 2019  Month Quarter  1 Year 3 Year  5 Year 

Freehold Australian Property Fund

 2.4% 2.9%  10.8%  6.4%  12.6% 
Freehold A-REITs & Listed Infrastructure Fund*  4.5% 3.6%  16.2%  6.4%  13.3% 

 A-REITs Index**

4.2% 4.1% 19.4% 8.2% 14.5%

*Net of fees

*A-REITs Index is the S&P/ASX 300 AREIT Accumulation index; Listed Infrastructure Index is a subset of S&P/ASX 200 Index infrastructure sub industries, as defined by the Global Industry Classification Standard (GICS)

Key Highlights

  • In the A-REIT sector, despite a swathe of equity capital raisings during the month, the sector continues to be well supported, reinforcing our view that investors are keen to increase their defensive allocations amid the increasingly uncertain economic backdrop. 
  • Looking forward, the next catalyst for the sector is the upcoming August reporting season. The Fund remains positioned in quality, defensive companies with predictable earnings that exhibit a low probability of negative earnings revisions. Of particular interest will be the full year independent portfolio revaluations, with our expectations that office and industrial assets will continue to post strong gains, whilst the retail sector may continue to face external pressures. The Fund is appropriately positioned to benefit from these expected themes.
     
What we're looking out for this month:
  • We're looking for reporting season in August to validate our Fund positioning. We're expecting office and industrial REITs to maintain positive momentum;
  • Within retail, we will be assessing tenant operational performance and its impact to underlying asset valuations. Within residential names, we will be watching pre-sales and any trends in converting to settlements; and
  • Whether the US Fed cuts at the end of the month whilst Australian rates reach all time lows. Wihen will the foot come off the pedal?

Detailed fund updates:

If you have any questions, please don't hesitate to reach out on enquiries@freeholdim.com.au, or +61 2 9228 1400

 

Topics: reit, property