May Performance Update

Posted by Simon Karlsson on May 13, 2019, 10:09:19 AM

 

In April, a rebound in US retail sales and a GDP reading coming in above expectations saw bond yields in the US increase slightly over the month, despite recent rhetoric by the Federal Reserve that any interest rates likely remain on hold. Domestically, the housing sector continues to see valuation declines impacting consumer sentiment. Furthermore, inflation for the quarter was well below expectations leading many market participants to speculate an interest rate cut may be imminent.

 Key Figures

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

Freehold Australian Property Fund

 (0.4%) 2.1%  12.1%  7.0%  12.6% 
Freehold A-REITs & Listed Infrastructure Fund*  (2.2%) 5.5%  15.1%  6.3%  12.8% 

 A-REITs Index**

(2.3%) 5.5% 18.0% 7.9% 13.7%

*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

  • Sydney and Melbourne commercial office markets continue to be underpinned by record low vacancy rates, which are driving effective rental growth. This strength was highlighted by the significant acquisition of 80 Collins Street, Melbourne by Dexus which undertook a $900m capital raising to fund the purchase.
  • On the flip side, retail landlords continue to face increasing structural headwinds from a slowing sales environment and declining rents. With over $11bn of retail assets reportedly on the market, investors are seeking price discovery. The Fund remains significantly underweight retail landlords.
  • Looking forward, we continue to remain confident in our long held view of 'lower for longer' and see no clear catalyst for this to change. Global headwinds remain prevalent and the yield curve continues to imply a low inflation outlook, which is supportive of defensive sectors such as AREITs and infrastructure. At this point in the cycle, the Fund continues to invest in quality businesses with valuation support and a focus on preserving capital.  
What we're looking out for this month:
  • The outcome of the upcoming Australian federal election may be a catalyst for markets given proposed changes to negative gearing and capital gains tax relief;
  • How events play out in relation to stabilisation of residential markets, i.e. election or changes to APRA stress test rates (currently 7.25%); and
  • Any signs of the coming reckoning for shopping centres as willing buyers and sellers transact in an environment of lower prices. 

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