In January, defensive sectors continued to benefit from the increased global caution that saw the US Federal Reserve soften its global growth expectations. Bond yields in the US and domestically declined by -6bpts and -8bpts respectively as a result. In the UK, Prime Minister Theresa May’s Brexit plan was overwhelmingly rejected by the UK parliament which further fuelled equity market volatility and global growth concerns. Domestically, the focus continues to centre around the housing market with dwelling prices continuing to fall nationally due to a tightening of the lending criteria.
- The Australian Property Fund returned 10.3% for the rolling 1 year to 31 January 2019 (5 year: 13.5% p.a), against the A-REIT 300 Index of 13.1% (5 year: 14.4% p.a);
- The A-REITs and Listed Infrastructure Fund returned 8.7% for the rolling 1 year to 31 January 2019 (5 year: 12.9% p.a), against the A-REIT 300 Index of 13.1% (5 year: 14.4% p.a);
- The latest valuations release by Vicinity Centres was topical given it highlighted an NTA decline, with sub-regional and neighbourhood shopping centres bearing the brunt of the devaluations. This is not unexpected, in our view, with the Fund having a significant underweight position across the retail sector given the increasingly challenging trading conditions tenants are encountering;
- The infrastructure sector also continued to be supported by the low bond yield environment, however Sydney Airport came under pressure as a result of slowing Chinese passenger growth and increasing concerns surrounding the outcome of the Productivity Commission Draft Report on the economic regulation of airports. We took this opportunity to ‘top up’ the position as we believe the selloff was overdone;
- Looking forward, despite the recent strong rally in defensive sectors the macroeconomic environment remains cautious and as a result we expect bond yields to remain supportive. With reporting season upon us, we expect our defensive sectors to deliver a strong set of results, albeit with cautious forward looking outlook statements;
What we're looking out for this month:
- Any evidence of softening in the Australian jobs market;
- Will upcoming elections in NSW and Federally drive incentives to support the residential market;
- Potential distressed sales of residual apartment stock or land banks.
Detailed fund updates: