Keep on holding that attractive yield

Posted On Monday, 11 April 2005 02:00 Published by eProp Commercial Property News
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REMAIN COMMITTED: Standard Bank Properties’ Mariette Warner.

 

Mariette WarnerYou know a sector has grabbed investors’ attention when its future prospects spark the sort of debate seen about listed property at the moment.

It’s not hard to see why the sector has become so popular: unit trust company Stanlib says listed property has delivered more than 100% capital growth in the past three years.

Demand from investors has been so steep that several unit trust funds have been capped recently, such as Stanlib’s Property Income and Multi-Manager Property funds, and Coronation’s Property Equity fund.

Listed property stocks function similar to bonds in that their prices generally rise as their yields fall, and vice versa.

There is also a correlation between bond and property markets, Stanlib says — if the bond market trends lower, listed property falls as well.

Speculation that listed property’s long run might be over surfaced in early March when bond yields moved higher.

Henk Viljoen, head of Stanlib’s fixed-interest team, said there was a 5% fall in prices in the bond market in the last two weeks of March, when there was an offshore sell-off of emerging market debt (which included SA bonds).

Head of specialist funds at  Standard Bank Properties Mariette Warners aid of the recent sharp rise in bond yields: "Bond jitters led to a negative reaction in listed property at the beginning of the year.

"Then came a spate of strong property company results, and the property sector more than recovered its losses.

"During the last two weeks of March, the bond market again caused listed property to fall — but listed property lost only half the value that was shed by the bond market."

She said investors may want to rebalance their holdings in the current environment of rising yields, "but abandoning listed property is not warranted".

"In the next six weeks more property company results are expected. Strong fundamentals suggest that further solid growth in distributions will be reported from the sector, which is in the early stages of a distribution growth cycle."

Warner said that although the listed property sector was affected by bad news in the bond market, "it is cushioned by rising earnings".

"Listed property offers the highest yield, 9.8%, of all income products. It’s a key component of a diversified portfolio."

And while the sector has risen strongly in price, Warner said, "the smart play is to lock in some profit — perhaps by a switch to short-dated instruments [such as income funds or money market] — but remain committed to property as a good strategic bet".

Stanlib said an investor with a strong position in property might want to adjust this exposure, without abandoning the sector, while increasing his fixed-interest exposure to money market and income funds.

Warner said she expected yields to remain stable this year — at about 10% on average on a forward yield. Good growth in earnings should translate into capital growth.

However, the big risk to the sector was the oil price, she said, as it affects global inflation and hence global yields. Any attendant weakness in the rand could prompt a switch out of bonds and listed property into cash and rand hedge stocks — although she said any external shocks were "very unlikely to be near 1998’s proportions", referring to the price falls during the emerging markets crisis.

She recommends a longer investment horizon for property funds than more general equity funds "because of where we are in the interest rate cycle".

"The change in rates here on out is up, so there is a downside risk on capital but rising earnings should see investors safely through interest rates rising."

Gerhardt Meyer, head of financial planning at acsis, doesn’t recommend making listed property one’s core holding. He says "people should look at it from a holistic asset allocation perspective" and any investment in a particular asset class "should be done as part of overall financial plan".

Last modified on Saturday, 10 May 2014 12:07

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