Global listed property outperforms A-REITs
Global listed property has outperformed both Australian listed property and international shares over the five years to 31 August, as investors seek high yield and a steady income stream in a low interest rate environment.
Despite this, many individual global listed property funds have been less successful, with many active fund managers falling short in their regional and country investment decisions, according to Morningstar's global listed property fund sector review.
This is particularly evident in their decisions to underweight North America, which has been a strong performer in the sector since 2008, Morningstar stated.
The sector review found A-REITs produced dividend yields of 5.9 per cent for the year to 30 June 2012, a higher income level than a number of global REITs including continental Europe (5.5 per cent), United Kingdom (4.3 per cent) and the United States (3.3 per cent).
Australian listed property was also less susceptible to currency issues compared to its global counterparts, Morningstar stated.
Despite this, global funds as an asset class were found to offer greater diversification at the sector level than A-REITS.
"This highlights one of the major structural limitations of the Australian asset class, and strengthens the case for the argument that the most effective way to invest in listed property is with a global listed property fund manager with a flexible mandate which includes the ability to invest in A-REITs," the report stated.
While the value of the Australian dollar can have a significant impact on global listed property fund managers' ability to pay income distributions, changes to taxation legislation may enable fund managers to deliver a steady income stream by passing hedging gains and losses through the capital rather than the income account, the report found.
Fund managers have preferred the UBS Global Investors Real Estate Index and the FTSE EPRA/NAREIT Global Real Estate Index when measuring performance, the paper stated.
With the UBS index having a greater preference for stocks that have a focus on rent collection and less exposure to developers, Morningstar said it is important for investors to be aware of a fund manager's benchmark selection and "avoid misleading comparisons".
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