Global listed property funds, which may include some of these Dubai buildings, offer an average yield of 3.5 per cent.
Photo: Bloomberg
After two years of billion-dollar outflows, listed property funds deserve attention again thanks to reasonable valuations and average global yields above 3.5 per cent, says research house Morningstar, which has just released its rankings of the best funds available to retail investors.
Morningstar admits we’re unlikely to see a repeat of listed property’s windfall returns of 2012, when the ASX 200 Real Estate Investment Trust index and FTSE’s global listed property index were both up more than 30 per cent.
However, with the term deposits that investors preferred in 2011 and 2012 suffering from record low interest rates, the yields available from listed property – 3.5 per cent globally, and above 5 per cent in Australia – look attractive.
Given last year’s returns in listed property, there’s a possibility that new investors have “missed the boat”, but Morningstar’s report shows the fundamentals remain sound. Globally, the average premium to net asset value was 3 per cent as at April 2013. Australia’s premium is 7 per cent, but this is distorted by high premiums at Westfield Group and Goodman Group.
Income-hungry investors can take further comfort that Australian listed property trusts have an average payout ratio around 80 per cent, versus a global average of 60 per cent that itself provides scope for increases.
In terms of the funds managers selecting listed property stocks, Morningstar expects the range of returns among Australian REIT funds to be relatively narrow.
“That’s one reason we think low-cost passive strategies are particularly attractive in the Australian REIT space – the lower the active bets, the more important fees become.”
The famous four
For that reason, two of Morningstar’s favourite four listed property funds are passive trackers of the ASX 200 REIT Index – the BlackRock Indexed Australian Listed Property Fund, and Vanguard’s Property Securities Index product.
One active Australian REIT strategy makes its top four – BT Property Investments Fund under portfolio manager Peter Davidson.
“The repeatability of the process at work here and the consistency of the results it produces make this strategy a best-in-class offering,” Morningstar says.
“The team are some of the most experienced and tenured players in the local market and the management fees charged are amongst the lowest of any active strategy available.”
The best global listed property fund was deemed to be UBS Clarion Global Property Securities.
“T. Ritson Ferguson formed Clarion back in 1991 and is among the most seasoned property investors we have come across. Ferguson has the backing of an impressive team whose research and insight we feel is second to none in this space,” Morningstar says.
“The strategy encompasses both top-down and fundamental stock views, showing an impressive ability to deliver for investors across all market conditions.”