- "The income return on property looks relatively attractive and has the important advantage of being a real asset and a reasonable inflation hedge"
In February listed real estate stocks tracked wider markets, with the strongest performance once again coming from Asia, despite further policy tightening measures in Hong Kong. European stocks were weakest in US$ terms as a result of currency weakness. Overall, the FTSE EPRA/NAREIT Developed Index gained 0.72% in US dollar terms. This is the benchmark for the Henderson Horizon Global Property Equities Fund, which performed broadly in line with the index. Their overweight allocation to Asia-Pacific added value, as did the underweight position in Europe.
“We remained active in Asia, adding to positions in Japan in light of our incrementally constructive macro view of the region. Purchases were funded from sales in Australia and Singapore as well as China, where we took profits given policy fears”, explained Guy Barnard and Patrick Summer, co-portfolio managers of the fund in a communication to clients. “In North America we added Wynn Resorts in the hotel space, selling RLJ Lodging. The trade was based on relative value and our expectation of better growth at the higher end of the hotel market than at the limited service price point.”
Global economy is in the doldrums and consensus forecasts point to sub-par growth in 2013. According to the investor team who runs the Henderson Global Property Equities Fund it is hard to predict how politicians will balance the conflicting demands of bond markets and citizens. However, none of this is new news. “Whatever uncertainties exist, it may be fair to say that they are ‘in the price’ and risk appetite is increasing, although sovereign bond yields remain at record lows. Against this backdrop, the income return on property looks relatively attractive and has the important advantage of being a real asset and a reasonable inflation hedge”, they add. In this context, the portfolio managers expect average property values to recover in line with tenant demand, given the general lack of new development. “However, in a weak economy there will be a big difference between the best and the rest. Equity market volatility is likely to persist over the coming months but with a high dividend yield and access to capital markets the companies in which we invest remain well placed”, they conclude.
Patrick Sumner has an MA in Modern Languages from Oxford University and an MSc from the London Business School, where he is a Sloan Fellow. He is a Member of the Royal Institution of Chartered Surveyors and of the Investment Property Forum. He was a founding Executive Board member of EPRA, the European Public Real Estate Association, where he was responsible for the establishment of the global index. Patrick has more than 20 years' experience of European real estate markets, first with Hillier Parker and subsequently with quoted companies Reinhold, Arcona and Chesterfield Properties. He joined Henderson Global Investors in 1997.
Guy Barnard joined Henderson Global Investors in 2006 as an analyst with the Property Equities team and subsequently became a Fund Manager in 2008. He began his career within the Financial Control function at UBS where he spent a period of three years. Guy holds a First Class BSc (Hons) degree in Mathematics and Management from Loughborough University and is a CFA Charterholder.