December Performance Update

Posted by Grant Atchison on Dec 30, 2019 1:00:02 PM
Grant Atchison
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In November, bond yields in the US and Australia moved in different directions. US sentiment towards a potential agreement between the US and China on trade is firming, and a clear message that interest rates are on hold for the foreseeable future saw bonds increase by 10bpts to 1.78%. Conversely, Australian bond yields declined by 10bpts to 1.03% amid increasing sentiment that the RBA will continue to cut official interest rates in the New Year. While the RBA is hopeful that these extraordinary low interest rates will stimulate consumer spending, the latest GDP estimate indicates otherwise. Further, domestic GDP for the September quarter came in at just 0.4% (1.7% annual) implying that the low interest rates together with the tax cuts announced in the last budget are not driving consumer spending patterns.

 Key Figures

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

Freehold Australian Property Fund

 1.3% 1.4%  14.4%  10.4%  11.9% 
Freehold A-REITs & Listed Infrastructure Fund* 2.2% (0.1%)  22.9%  11.5%  12.5% 

 A-REITs Index**

2.3% 0.8% 26.9% 13.5% 13.7%

Listed Infrastructure Index**

1.7% 2.6% 34.7% 18.1% 17.1%

Unlisted Property Index***

0.3% 1.4% 6.2% 9.8% 10.5%

*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) **Unlisted Property Index is the Mercer/IPD Australia Core Wholesale Property Fund Index

Key highlights:

  • During the month, news flow typically centred around AGMs where corporates for the most part reaffirmed their earnings guidance. One of the more interesting AGMs was Cromwell Property Group (not owned) with major owner ARA Real Estate Investors attempting to get their own representative onto the Board, however they narrowly failed. Another major event was the voting down by investors in Australian Unity Office Fund of the takeover offer via a combined bid from Abacus and Charter Hall Group. Finally, Sydney Airport Group (SYD) received some positive news following the release of the Productivity Commission’s review which concluded that SYD had not systematically exercised market power in commercial negotiations and that the current approach to regulation should continue to be adopted, effectively putting to bed any potential increase in regulatory oversight for SYD.
  • Looking forward, we expect the sector to continue to be well supported given our expectations of a continued lower for longer interest rate environment. Furthermore, the recent AGM season only reaffirmed that earnings across the board are broadly intact and physical market evidence suggests that there remains continued strong demand for assets with long-term predictable cash flows. Finally, the sector goes ‘Ex distribution’ at the end of this month which often provides good buying support to the sector.

What we're looking out for this month:

  • Will stability in US and China trade negotiations hold firm into the new year;
  • How long will the RBA persist with attempts to boost economic activity via a monetary policy driving historically low interest rates. The holiday sales period will be telling; and
  • Hopefully a chance for fireys and those doing it tough to enjoy the happy season.

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