Nedgroup Investments Global Property Fund celebrates strong first year

Nedgroup Investments Global Property Fund celebrates strong first year

By Nedgroup Investments, 21 Aug 2017

The Nedgroup Investments Global Property Fund has celebrated its first 12 months and has surpassed the $60million mark.

Although this is a short period over which to judge performance for a fund of this type, this Fund leverages off the excellent long-term track record of Resolution Capital’s Global Property capability and has produced some highlights in the first year.

These include:

  • 3.6% outperformance of the FTSE/EPRA NAREIT Developed Index in USD
  • 4th out of 27 global property funds available for sale in SA in its Morningstar category
  • 3.5% outperformance of the Peer Group Average (Available for sale in SA)
  • Top quartile performance (36/158) within the full Morningstar EAA Fund Property – Indirect Global peer group
  • 1.9% outperformance of the full Morningstar Peer Group Average

Performance drivers

The strong performance of the fund relative to its benchmark has been driven by the overweight sector exposures to office, data centres and towers, and industrial.

Resolution Capital holds the conviction that supply and demand dynamics, as well as other internal growth drivers, are currently favourable in these sectors.

Resolution Capital’s office holdings are concentrated in US West Coast office stocks given the continued strong occupier demand from technology tenants. Resolution Capital’s largest office exposure (as at 30 June 2017) was via Kilroy Realty who own and manage vibrant business epicentres including Silicon Valley with a number of big-ticket technology tenants like Facebook, Google, Amazon, and Uber.

Meanwhile, industrial (logistics) property continues to experience strong demand bolstered by the continued rise of e-commerce and the subsequent distribution requirements.

In contrast to the challenges facing traditional retail property, within the industrial sector logistics-related property continues to thrive. The rise of online retailing is leading to sustained strong demand growth from both e-tailers as well as the need for traditional retailers to re-engineer their supply chain.

Data centres and towers are also a rapidly growing segment of the market. Data center REITs are well-placed to take advantage of the tailwinds of big data, cloud computing, streaming content, wireless data, virtual and augmented reality, and social media. Resolution Capital therefore believes that this sector has robust industry leasing trends.

Three specific stocks that boosted the fund’s performance were: Diamondrock Hospitality Company – a US hotel REIT; Equinix - one of the data centre exposures; and Sun Hung Kai - a diversified REIT that specialises in developing premium-quality residential projects, offices and shopping centres in Hong Kong and Mainland China.

Question marks

Two stocks that detracted notably fromthe returns of the Fund relative to the benchmark were General Growth Properties and Simon Property Group – both large mall owners and operators in the US.

“The weak share prices of retail REITs reflected bad news emanating from retailers, most notably an increase in bankruptcies and negative retail sales growth. Question marks over the viability of department stores, no longer the mall’s cast iron anchor, continue to be a major concern and the economics of repurposing this space is contentious,” writes Andrew Parsons at Resolution Capital.

However, Resolution Capital think that the “death of the mall” is overblown, and that malls will exist in some configuration in the next 40 years, although it remains to be seen what form that will be.

Retail companies will ultimately need to have an omni-channel presence, and will therefore continue to have exposure to the sector in the higher quality REITs, which they see as important in the context of a diversified portfolio.

Having said that, Resolution Capital has not been recently adding to General or Simon and have in fact been strategically trimming both positions over the past few months. Despite weakness in these two stocks, the portfolio’s large underweight to the retail sector through the period was another significant contributor given the headwinds this sector is currently facing.

Looking forward

Resolution Capital were appointed as Fund manager of the Nedgroup Investments Global Property Fund based on extensive peer reviews and research. Resolution Capital is a specialist investment manager that is focused on global listed real estate securities. They are an independent firm, majority owned by partners and employees with a stable and experienced team who have enjoyed a great long-term track record.

We have been very pleased with the performance of the fund in the first 12 months and we look forward to continued success with Resolution Capital going forward.

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