Page 168 - Profiles's Unit Trusts & Collective Investments - September 2024

CHAPTER 9

We prefer REITs with established property portfolios that employ limited development
activities to support the organic growth of their property portfolios. These companies produce
more predictable and relatively stable rental income streams, from which regular dividends can be
paid to shareholders. We don’t invest in property developers, which undertake significant
development and operational risks to generate profits and cash flows on property disposals.

Please comment on the year ahead and, if possible, estimate the performance of your fund
over 2 or 3 years. What are your targets and objectives for the year ahead?
Global listed property companies have over the last two years experienced a uniquely negative
environment, which was characterised by a rapid increase in interest rates, higher bond yields and
slowing economic growth. All three factors negatively impacted property fundamentals, earnings,
and valuations, which resulted in global property underperforming global equities.
The US Federal Reserve (Fed), Bank of England (BoE) and European Central Bank (ECB) have
all recently indicated that inflation in their regions appears to be under control and that they are
more willing to ease monetary conditions going forward and reduce interest rates. This should lead
to more business and consumer spending, and an increase in economy activity, which should make
for a more positive investment environment for global listed property over the next two to three
years. The fund is overweight developed markets, where monetary policy has been more restrictive
and therefore should benefit more from an environment of lower interest rates and higher
economic growth. We therefore expect global listed property to produce US dollar returns in
excess of its average long-term average of +8% per annum over the next few years.
The fund aims to provide investors with a reasonable level of income, as well as long-term
income and capital growth. The fund aims to outperform the GPR 250 REIT Index in rand. The
fund is ideally suited for investors who:
Seek a diversified portfolio of global property stocks across developed markets and various
property types, some of which are not available in South Africa (i.e., listed on JSE) eg.
healthcare, data centres and mobile towers.
Seek to diversify away from the South African listed property market or compliment it with a
portfolio of sector-leading global property companies.
Seek to diversify their offshore cash, equities and/or bond exposure with a unique growth
asset class with low correlation benefits that will enhance their overall investment portfolio’s
risk-adjusted return profile.
What are your expectations for the property sector?
The global listed property sector should benefit from higher economic growth and lower
interest rates over the next few years. The sector should also benefit from a stabilisation in
unemployment levels and inflation, which will support higher consumption and spending by
consumers and businesses. Political stability is a key factor for property, and investors are eager to
see the outcome of the US presidential election in November to fully appreciate the domestic and
foreign policies that are likely to be implemented by the next US president during his or her initial
four-year term.
Global listed property is less correlated to global bonds over the medium and long term than
many investors assume. However, over the last two years developed market listed property prices
have tracked the movement in the US, UK and EU 10-year bond yields (specifically the US) very
tightly and have been less influenced by the underlying property fundamentals and earnings of
each property company and sector. If this relationship and correlation continues to hold in the
short term, we should see some positive price increases from developed market listed property as
the US, UK and EU 10-year bond yields follow official interest rates lower as we enter an interest
rate cutting cycle.
Could you identify three shares that fall within your universe that you think will perform well
in the medium term?
Office REITs globally have underperformed since the onset of the Covid-19 pandemic in 2020.
Many businesses around the world were forced to implement work from home policies during the
pandemic lockdowns and subsequent waves of infections. There has been a slow return to the

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