Property & Infrastructure Funds Listed property headlines disguise full story

Discussion in 'Shares & Funds' started by twisted strategies, 13th Jul, 2017.

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  1. twisted strategies

    twisted strategies Well-Known Member

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    by Adrian Harrington on July 12, 2017 0

    A cursory look at the headline performance of the Australian listed property trusts, or as they are now more commonly known, Australian real estate investment trusts (A-REITs), would suggest all is not well. The S&P/ASX300 A-REIT Index posted a total return of -5.6% in the year to 30 June 2017, underperforming the equities market, which returned 13.8%. The underlying direct property market returned circa 12%.

    The headline index performance is deceiving and the composition of the S&P/ASX300 A-REIT Index is fundamentally flawed. Like most indices, it is weighted by the market capitalisation of each security. The larger A-REIT securities such as Scentre (ASX:SCG), Westfield (ASX:WFD) and Stockland (ASX:SGP) have a higher weighting in the Index. It says nothing about the merit of a particular security.

    Investors are continually reminded not to put all their eggs in one basket and avoid taking concentration risk. We are told to diversify, diversify, and diversify. Yet the A-REIT Index fails that test. The top eight A-REITs comprise a staggering 78% of the Index by market capitalization, as shown in the figure below. The performance of these A-REITs has a massive influence on the Index and the sector.

    for the full article ( link below )
    Listed property headlines disguise full story - Cuffelinks

    ( DYOR )

    i hold BWP , SCP , RFF , INM , SGP , MGR , ABP and CMW ( my largest holding in this sector )

    with NSR on my shopping list
     
  2. Simon Hampel

    Simon Hampel Founder Staff Member

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    The index is just the index - it does nothing more than give you an indication of how a particular sector is performing overall. It's a formula, not a recommendation. The weighting factor may be an issue from a concentration point of view - but I think it's better to have the index work the same way as the broader ASX indicies work, just for consistency.

    The more important question is whether you should try and emulate that index with your investments (whether through a trust which aims to track the index or some other way). Based on the concentration factor due to a relatively small number of shares with only a few holding a very very large weight overall - I'm not so sure that's a great idea.

    Personally, I'm not that impressed with the Australian property trust sector - I did invest in a property specific fund back pre-GFC, but now I only hold a global property trust (Colonial First State Wholesale Geared Global Property Securities) which has only 12% allocation to Australian property, 55% North America, 7% Europe, 9% UK, 9% Japan, 9% Asia.

    Performance hasn't been stellar in the past 2 years (I'm aiming for 20%+ returns via the gearing facility) - seems to be a bit range-bound with high income offsetting some capital losses recently. I'm currently monitoring the performance carefully and may exit if overall growth doesn't improve.
     
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  3. twisted strategies

    twisted strategies Well-Known Member

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    i like to use an index as 'a basket of apples ' and like to try to pick out the sweetest ones ( regardless of the looks ) , i try to pick a minimum of 3 good stocks in a targeted index , and then try to find an acceptable entry price from each stock .

    i see plenty of headwinds across all sectors , and it will be hard to tell if property will suffer more ( or less ) than other sectors .

    along with my REIT picks i did select a property related stock ... LMW to 'ride the coat-tails of the next property boom ( i did hold OTH but that is a different story )