May, 2023
The S&P/ASX 300 AREIT Accumulation Index fell 1.8%, as the markets increasingly started to factor in further interest rate rises/higher for longer, given the ongoing, robust inflation data.
Consumer discretionary and staples were the worst performing sectors on the ASX in May, given a slowing in retail sales, tradingdown/value-conscious shopper coming to the fore. Retail AREITs, especially those exposed to discretionary retail fell in sympathy (unfairly in our view) given the fact that these sales figures have come-off relatively high levels and their rents are not determined upon a retailer’s sales turnover.
The AREITs (again) outperformed both the Global REITs (down 3.8%) and the general market (via the S&P/ASX 300 Accumulation Index) which was down 2.5%, driven by the underperformance in consumer sectors and financials. Information Technology delivered ~12%, benefitting from the AI thematic permeating the globe.
The ten-year bond yield rose 27 bps, to 3.61%. The ten-year real bond yields only rose 20 bps, to 1.17%. This has resulted in the implied inflation expectations for the next 10 years rising to 2.44%, edging closer to what we forecast longer-term inflation to be.
The correlation between the AREIT sector’s performance and real bond yield movements was therefore reestablished, given the enhanced risk of further interest rate rises.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/fs_WST_AJF0803AU-3.pdfApril, 2023
The S&P/ASX 200 AREIT Accumulation Index rose 5.29%, reversing a material portion of the drop experienced in March, when the markets were in a risk-off mode following some global banking failures. The residential-exposed names more generally delivered positive returns once more, as the market becomes more comfortable in the assumption we are near the high point of the interest rate rising cycle. As such, an improvement in underlying demand is also being generally forecast.
The strong performance of the AREITs saw it outperform both the Global REITs (up 2.0%) and the general market (via the S&P/ASX 300 Accumulation Index) which was up 1.9%.
The ten-year bond yield was little changed by the end of April, up 4 bps, to 3.34%, with a similar move in the ten-year real bond yields, seeing it at just under 1%, which is in line with our assumed through-the-cycle real interest rate. This resulted in the implied inflation expectations for the next 10 years remaining relatively flat at 2.36%, which is on the low-side to what we forecast inflation to be longer-term.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/fs_WST_AJF0803AU-2.pdfFebruary, 2023
The S&P/ASX 300 AREIT Accumulation Index rebounded in October, up 9.9% as investors returned to the interest rate sensitive sectors, given the belief that interest rate increases are nearing their cyclical peaks (both domestically and globally). The RBA’s surprising 25 bps increase in October was followed-up with another 25 bps on Cup Day, despite increasing inflation forecasts for Australia, not falling back to the 2% to 3% band until 2025 at the earliest. All sub-sectors were positive for the month but office barely so, as the cyclical and structural headwinds take hold. Domestically, the performance was driven by the ten-year bond yield falling 13 bps, to 3.76%. This was only after reaching an intra-month high of 4.20%. Crucially, real interest rates dropped 37 bps, finishing at 1.37%. Implied inflation expectations regained the 24bps it dropped in September, back to 2.38%. As stated last month, this is a “low figure implying a lower inflationary period in comparison to the last decade, which was an extraordinarily low inflationary era. This is counterintuitive to both the domestic and global outlook suggesting a continued and entrenched higher inflationary environment over the mediumterm before current inflation figures reach their target levels”. The Australian Dollar was down slightly, finishing under US$0.64. Global REITs underperformed the AREITs, delivering 3.1%, with the retail sub-sector leading the way. The general market (via the S&P/ASX 300 Accumulation Index) rose 6.0%. Financials and Energy were the other outperforming sectors for the month, whilst Materials and Consumer Staples finished down.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/fs_WST_AJF0803AU-1.pdfOctober, 2022
The S&P/ASX 300 AREIT Accumulation Index plummeted 13.6% in September, as investors globally fled the interest rate sensitive sectors on the back of an increasing likelihood of further interest rate rises, along with rising real bond yields. (Only Utilities fared worst). The fund managers, industrial and childcare sub-sectors were the worst performers in the AREITs. Global REITs were not dissimilar to the AREITs falling 11.8%, with the industrial subsector also the worst performing. The general market (via the S&P/ASX 300 Accumulation Index) dropped 6.3%. Energy and Materials were the outperformers for the second- consecutive month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/fs_WST_AJF0803AU.pdfSeptember, 2022
The S&P/ASX 300 AREIT Accumulation Index plummeted 13.6% in September, as investors globally fled the interest rate sensitive sectors on the back of an increasing likelihood of further interest rate rises, along with rising real bond yields. (Only Utilities fared worst). The fund managers, industrial and childcare sub-sectors were the worst performers in the AREITs. Global REITs were not dissimilar to the AREITs falling 11.8%, with the industrial subsector also the worst performing. The general market (via the S&P/ASX 300 Accumulation Index) dropped 6.3%. Energy and Materials were the outperformers for the second- consecutive month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/192856218.pdfAugust, 2022
The S&P/ASX 300 AREIT Accumulation Index fell 3.6% in August. The Retail AREIT sub-sector was the outperformer for the month, as the sales growth and re-leasing spreads surprised the market. The ten-year bond yield rose 54 bps, to 3.6% recovering nearly all of last month’s drop. The RBA’s 50 bps uplift in official interest rates is expected to be replicated for the next meeting, marking 225 bps in increases since May.
Real interest rates rose 35 bps, finishing at 1.21%. Implied inflation expectations thus rose ~20 bps to 2.38%. Despite the lift this intuitively remains on the low side, as both the domestic and global outlook suggests a continued and entrenched higher inflationary setting going forward. Global REITs fared worst, dropping 5.7%, negatively impacted by the rising rates globally, especially from the rhetoric continuing to emanate from The Fed. The general market (via the S&P/ASX 300 Accumulation Index) rose 1.2%. Reversing last month’s performance, Energy and Materials outperformed, whilst IT joined the Staples and AREITs, as the laggards.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/192180191.pdfJuly, 2022
The S&P/ASX 300 AREIT Accumulation Index rebounded 11.8% in July. The ten-year bond yield falling 60 bps to 3.06%, having exceed 4% mid-June, drove the rally, as the market prices in interest rate cuts to commence in the medium-term, looking through the forecast increases still expected in 2022. The US Fed’s controversial pronouncement of being closer to neutral drove the yield compression in late-July. Yield curves flattened in Australia and inverted elsewhere, most notably in the USA, signifying a slowdown.
Real interest rates fell 55 bps, finishing at 86 bps. Implied inflation expectations declined marginally to 2.2%. This remains on the low side, given the data and expectations in the market surrounding inflation going forward, moving to an environment that we believe should see higher inflation and interest rates than witnessed in post-GFC, which was driven by some easing on globalisation and the associated, predominantly deflationary impacts. Entities reliant upon lower return hurdles, with a larger portion of active earnings streams (ex-Residential) drove the AREIT index up, led by the fund managers. Industrial rebounded, lower yields assisted in maintaining the sub-sectors tight cap rates. Global REITs also benefitted from these tailwinds, rebounding 7.7%. The general market (via the S&P/ASX 300 Accumulation Index) rose 6.0%. Materials was the sole sector to fall, as the global growth concerns rise. Only IT domestically outperformed the AREITs, benefitting from the dive in yields.
Future investment strategy
We continue to target Australian Real Estate Investment Trusts (AREITs) that provide solid fundamentals over the medium-tolong-term that are trading attractively relative to other AREITs. Overall we endeavour to invest in entities that offer a combination of:
- A Net Present Value (“NPV”) Discount;
- An Internal Rate of Return (“IRR”) Premium;
- Ideally a (Real, not manufactured) Free Cashflow Yield Premium; and
- A Lower Price to Net Asset Value (“NAV”).
June, 2022
The S&P/ASX 300 AREIT Accumulation Index dived 10.4% in June, as the rising rates complex continued to take its toll on equity markets and in particular profitless entities (namely tech). Tax loss selling is believed to have had an even greater impact than previous years, with key indicators suggesting that the markets and sector are oversold. The RBA surprised some, lifting official cash rates by 50 bps in an overdue attempt to get in front of the inflationary pressures. The risk of a recession consequently grows, as the demand-side of the economy feels the force of on-going interest rate rises to curb the predominant and entrenched supply-side constraints. This whilst leading economic data is starting to highlight the economic stagnation associated with rising inflation. Entities with a larger portion of active earnings streams (exResidential) drove the AREIT index down, led by the fund managers once more, which are being re-rated lower, given the unfavourable backdrop. Higher interest rates and lower multiple assumptions are belatedly continuing to be applied to their earnings streams.
By property sector, industrial was the worstperforming, as its cap rates are the tightest heading into this contractionary environment. The ten-year bond yield rose 31 bps to 3.66%, having exceed 4% intra-month, as the market priced in further interest rate rises. Real interest rates increased more significantly 46 bps, finishing at 1.41%. The market appears to be implying that the supply-side induced inflation will material subside over the medium-term. Global REITs outperformed AREITs but were not immune to the rising rate environment, delivering negative 7.8%, dragged down by office. The general market (via the S&P/ASX 300 Accumulation Index) was down 9.0%. Materials were the main drag in Australia, as the growing concerns of an economic downturn implies less demand for inputs.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/190343350.pdfMay, 2022
The S&P/ASX 300 AREIT Accumulation Index rose 1.4% in March. The ramifications of the war in Ukraine are adding further pressures to the global supply chain. The ten-year bond yield launched 70 bps to 2.84%. Real interest rates by comparison “only” jumped 51 bps but moved firmly into positive territory, finishing at 34 bps. The difference between the nominal and real yield derives the implied inflation expectations, which saw a 20 bps shift up to 2.50%. Similar moves were also witnessed globally, as the interest rate hiking cycle gathers momentum, to deal with the still escalating inflationary pressures.
The Australian dollar rose another two cents in March, finishing just shy of US$0.75. Once again, the strength of the commodities constituents greatly assisted, with Australia more generally being a relative haven globally. Global REITs outperformed the AREITs, generating 4.7% in returns primarily driven by strong performance of US REITs. The general market (via the S&P/ASX 300 Accumulation Index) outperformed both the AREITs and Global REITs once more, delivering 6.9%, as Australia’s commodity-heavy and banking sector bias on the ASX saw it outperform the present market environment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/189243188.pdfMarch, 2022
The S&P/ASX 300 AREIT Accumulation Index rose 1.4% in March. The ramifications of the war in Ukraine are adding further pressures to the global supply chain. The ten-year bond yield launched 70 bps to 2.84%. Real interest rates by comparison “only” jumped 51 bps but moved firmly into positive territory, finishing at 34 bps. The difference between the nominal and real yield derives the implied inflation expectations, which saw a 20 bps shift up to 2.50%. Similar moves were also witnessed globally, as the interest rate hiking cycle gathers momentum, to deal with the still escalating inflationary pressures.
The Australian dollar rose another two cents in March, finishing just shy of US$0.75. Once again, the strength of the commodities constituents greatly assisted, with Australia more generally being a relative haven globally.
Global REITs outperformed the AREITs, generating 4.7% in returns primarily driven by strong performance of US REITs. The general market (via the S&P/ASX 300 Accumulation Index) outperformed both the AREITs and Global REITs once more, delivering 6.9%, as Australia’s commodity-heavy and banking sector bias on the ASX saw it outperform the present market environment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/187329446.pdfApril, 2021
The S&P/ASX 300 AREIT Accumulation Index delivered 3.1% in April, while the Ten-Year Bond Yield remaining relatively unchanged in the mid-1.7% level. Real Interest Rates materially dropped to negative 50 bps. Despite the lower CPI print during the month, the Implied Inflation Expectations rose again, to 2.26%. Placing this into perspective, heading into 2021, the TenYear Bond Yield was sub-1%, Real Interest Rates were negative 80 bps, with Implied Inflation in the mid-1.7% range.
The AREIT sector continued to underperform the Global REITs, which returned 5.7% in April. Global REITs enhanced exposure to Alternative Real Estate sectors has been delivering the outperformance in recent times, as Investors shun the more established real estate sectors due to lingering concerns on the Income Line (Office and Retail) along with the toppy pricing in Industrial. Domestically, the general market (via the S&P/ASX 300 Accumulation Index) returned 3.7% for the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/173742134.pdfMarch, 2021
The AREIT’s in March shook-off the relatively elevated YieldCurve, registering a strong month. This was generally led by the more growth-orientated names, who have had a materially negative start to 2021, coinciding with the doubling of the RiskFree Rate (Ten-Year Bond Yield) over the quarter. Subsequently, the AREIT sector has lagged the Global REITs over the quarter, with some investors seeking a reversion to the mean within the
AREIT sector, despite the structurally different nature of the sector here, with circa. third of the AREIT sector’s earnings being derived from Corporate Income streams. The Growth/Fund Manager names in particular continue to face the headwinds associated from rising Inflation Expectations and Interest Rates. As such, the Fund’s exposure to such names is minimal and hence, delivers the enhanced valuation metrics.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/172363799.pdfMarch, 2020
The S&P/ASX 300 Property Accumulation Index consolidated the jump registered in November, up 0.6% in December, as most of the AREIT sector’s participants traded on an Ex-Distribution basis (predominantly for the half) late in the month. Global REITs were the strongest, up 2.5% following their November jump, off the back of the vaccine news. The broader market in Australia (S&P/ASX 300 Accumulation Index) rose 1.3%. A continuation of Australia’s relatively better health prospects in managing the Pandemic, continues to lead to an improvement in economic prospects. This was reflected in the 10-Year Bond Yield, which rose another seven bps, finishing at 97 bps.
The Australian Real Bond Yield fell 18 bps to negative 80 bps, implying Inflation of ~1.8% (up from the 1.5% in November). Further steepening of the Yield Curve should continue to benefit the cyclical/value names going forward. The Australian Dollar jumped over 3.5 cents, finishing just under US$0.77, as Iron Ore continues to soar, up ~20% for the month. An ever-weakening US Dollar is also leading to the strong Australian Dollar, much to the chagrin of the Reserve Bank of Australia (RBA).
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/167303252.pdfasset_class:
asset_category:
peer_benchmark:
broad_market_index:
manager_contact_details: Array
ticker: AJF0803AU
release_schedule: Monthly
structure: Managed Fund
commentary_block: Array
factsheet_url:
https://onepathsuperinvest.com.au/_doc/fs_WST_AJF0803AU/fs_WST_AJF0803AU.pdf
fund_features:
OnePath WS-Property Securities Trust aims to achieve returns (before fees, charges and taxes) that exceed the S&P/ASX 200 AREIT Accumulation Index, over periods of three years or more. The fund invests predominantly in a diversified portfolio of property securities selected in accordance with a disciplined investment process.