Quality is key in an ‘oversold’ A-REIT sector
The sell-off in property has opened up some good buying opportunities in quality and alternate Australian Real Estate Investment Trusts (AREITs) investments, according to a Pengana portfolio manager.
Amy Pham, portfolio manager for the Pengana High Conviction Property Securities fund, Australia’s only high conviction A-REIT fund with an environmental, social and governance focus, said the A-REIT sector had been oversold despite the sector selling down -8% compared to -5% in the broader market.
“Valuations have remained buoyant and there are growing expectations rental collections will rise, and we will see improved visibility of earnings.” Pham said.
“Balance sheets generally look good, with the sector’s average gearing levels at 28%, supporting further growth through acquisitions and development.
“Earnings forecasts are also positive amid an improving economic backdrop.”
Pham said there were currently some outstanding quality Australian property stocks out there, including Charter Hall, Goodman, and Centuria, which recently upgraded their guidance and have the highest earnings growth in the sector.
Adding alternative real estate investments to portfolios provided additional opportunity to negotiate inflation and rate rises, according to Pham.
“The alternative sector is mainly driven by secular trends and is less cyclical, providing a potential hedge against inflation,” she said.
“Some of these assets are considered necessities, such as healthcare, childcare, and even data centres, which are all relatively well insulated against the cycle.”
If interest rates were to increase later this year, Pham said some investors might become more tempted to follow ‘yield traps’.
“We often see investors rush to higher yielding stocks during high inflation and higher interest rates. But chasing the yield could backfire if the quality is not there.
“The best way to protect property portfolios from inflation, interest rates, and volatility, is via high quality stocks and alternatives.”
AUTHOR
Liam Cormican
Recommended for you
Bennelong Funds Management chief executive John Burke has told Money Management that the firm is seeking to invest in boutiques in two specific asset classes as it identifies gaps in its product range.
Responsible investment performance concerns have lessened as the market hits $1.6 trillion in AUM, according to RIAA’s annual report, but greenwashing fears among asset managers are on the rise.
Research by Morningstar has found fixed income funds are bucking a general trend around managed fund fee dispersion with a smaller fee dispersion compared to equity ones.
As investors seek to diversify their portfolios, the naming of bond labels has broadened out to include green, social and impact bonds, according to the annual RIAA report.
