In August, our Funds outperformed the broader equities market. There were several catalysts for this. Firstly, the macroeconomic backdrop continues to deteriorate with no real improvement in the ongoing trade dispute between China and the US and this is impacting global growth expectations. Secondly, the month was dominated by reporting season, which, in many cases only reinforced the increasingly difficult global conditions. This is further evidenced by the continued bond market rally which saw US bond yields decline by 50bpts to 1.50% and domestic 10yr bonds fall by 30bpts to 0.89% over the month. Central Banks around the world are also reacting, with official interest rates continuing a downward trend in the hope of stimulating an increase in economic activity and generate some upwards inflationary pressures. It is hard to say if this has been truly successful to date.
|Investment Performance as at 31 August 2019||Month||Quarter||1 Year||3 Year||5 Year|
Freehold Australian Property Fund
|Freehold A-REITs & Listed Infrastructure Fund*||0.6%||8.3%||18.5%||7.3%||12.9%|
Listed Infrastructure Index**
Unlisted Property Index***
*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) **Unlisted Property Index is the Mercer/IPD Australia Core Wholesale Property Fund Index
- Domestically, the story is much the same. Annualised second quarter GDP came in at just 1.4% – its lowest number since the GFC – continuing its downward momentum from a peak annualised rate of 3.0% just 12 months earlier. With current interest rates at an already historically low of 1%, the market is factoring in further interest rate cuts as a means of providing stimulus. We question just how much more of an impact interest rate cuts can have from current levels, with other levers, in our view potentially needing to be explored.
- Looking forward, we remain of the view that we are in for a sustained period of low growth for the foreseeable future. Given this backdrop, we expect bond yields to remain low. This should continue to provide support for the AREIT and infrastructure sectors given their historical high correlation. Furthermore, reporting season only reaffirmed our views with respect to portfolio construction, where both the office and industrial sectors were the standouts in the property sector, with the challenges only increasing for retail landlords. As expected, the infrastructure names delivered no real surprises. We expect these trends to only amplify from here, and remain comfortable with our current portfolio positioning as, in our view, stocks with highly predictable earnings streams generated by high quality assets will outperform going forward.
What we're looking out for this month:
- Movements in trade wars continue to be top of mind;
- Retail transactional evidence; and
- 6 weeks of glorious World Cup Rugby in Japan.
Detailed fund updates:
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