Don’t ignore global property says Zenith
Australian investors slow to jump on the global property bandwagon are missing out, according to a new research house report on the property securities investment sector.
“Zenith believes there is an argument that global property forms a meaningful proportion of a property portfolio. While Zenith is cautious of the short-term expected performance of global property securities, based on a potentially overvalued US market, we believe an investor’s portfolio will be improved by a strategic allocation to global property over the long-term.”
According to Zenith, there are multiple reasons for investors to go global.
“The domestic LPT [listed property trusts] index now has an increased exposure to offshore assets, which reflect diminishing local opportunities. At present, approximately 38 per cent of the index is exposed to offshore property exposure, and this is expected to rise to above 50 per cent over the next two to three years,” said Zenith senior investment analyst Ben Davis.
He said people investing in local LPTs are, therefore, getting exposure to global securities anyway, but from managers that might not possess specific global expertise or are able to control foreign currency and interest rate risk.
“Secondly, the Australian market lacks appropriate diversification in terms of stock numbers and property sectors,” Davis said.
“Conversely, diversification is a key advantage of investing in a global property securities fund. Given the greater influence of local economic and market conditions on property performance, there is lower correlation between regions as there would be in equity and bond markets.”
Davis added that although global real estate investment trusts (REITs) have had lower payout ratios and lower yields than local LPTs, dividend growth for these vehicles has been significantly higher.
In the sector review, Zenith gave a ‘highly recommended’ rating to the IOOF/Perennial Wholesale Global Property Trust. Global funds run by APN, Deutsche and Macquarie received ‘recommended’ ratings.
On the local front, the Credit Suisse Asset Management Property Fund and the IOOF/Perennial Wholesale Property Trust got a ‘highly recommended’ rating.
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