Page 168 - Profile's Unit Trusts & Collective Investments - March 2025

CHAPTER 9

Are equity markets in general overpriced? Do you anticipate a significant correction or will
the bull-run continue?
We’ve seen quite a bit of volatility in factor returns over recent weeks, even though the
headline global market performance didn’t reveal much of the significant shifts. Across regions,
there’s a considerable spread in valuations which reflects investor caution amid ongoing
geopolitical uncertainty. We expect there to be pockets of strong performance as the themes that
drove much of 2024’s success begins to influence the broader market. Our investment process
tracks global companies in real time, so when there’s a wider range in company prospects, it
creates a great opportunity for stock picking – an area where our model really excels. It is also
worth noting that our portfolio tends to favour mid-cap companies, and at the moment, the
valuation arguments for these firms are rather compelling. In essence, while the market outlook
might appear mixed overall, we believe there’s plenty to be gained by focusing on quality stock
selection in an environment where the bull-run could continue in fits and starts.

Merchant West SCI Global Property Income Fund
Sector: Global–Real Estate–General
Portfolio managers: Richard Henwood and Ian Anderson
Benchmark: GPR 250 REIT Index TR
Returns to investors 1 year 3 years
Merchant West SCI Global Property Income Fund 1.60% -2.60%
Sector Average -2.95% -1.91%
Inflation (CPI) 3.02% 5.10%
Profile Data performance stats to 31 December 2024: CAGR with dividends reinvested
Please describe your investment universe.
The Merchant West SCI Global Property Income Fund is a rand-denominated fund that is
permitted to invest in securities of global real estate (listed property) companies and Real Estate
Investment Trusts (“REITs”). The fund’s investment universe includes both developed and
emerging markets. Although we have had exposure to some emerging markets in the past, in
recent years we have focussed our investment research and limited our portfolio holdings to
developed markets like North America, UK, Europe and Australia. We believe we have a better
understanding of property fundamentals in these markets; and that the property demand and
supply dynamics are more weighted in favour of the incumbent landlords in these regions.
We invest across all the major commercial property types like retail, industrial & logistics, and
office, as well as more specialist property types like residential, data centres, mobile towers,
healthcare, student housing and self-storage. We favour investments into more focussed property
companies that are expected to withstand the impact of technological and economic disruptions,
and that own property portfolios that are more likely to remain relevant to their tenant bases.
Please comment on your investment year (January - December 2024) from a fund manager’s
point of view.
The investment year to December 2024 was relatively difficult for the global listed property
sector and its investors as interest rates and bond yields remained relatively high, and economic
growth slowed in most developed markets. The rampant global inflation that peaked towards the
end of 2022 did decline in 2023 and 2024, but not yet to levels where central banks felt comfortable
that they could implement less restrictive monetary conditions and reduce interest rates to their
more long-term neutral levels.
The fund remained diversified across various property sectors, while underlying property
fundamentals and earnings growth were mixed over the last year. Some property types, like office,
are yet to fully recover from the Covid-19 pandemic, while others that were beneficiaries of the
pandemic, like self-storage, have seen their property fundamentals normalise back to pre-Covid
levels.

166 Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts