September, 2023
The fund delivered a negative return of -0.9% for the quarter and 2.0% in the year to 30 September 2023 (before fees and tax). The fund outperformed the benchmark return by 0.3% for the quarter and 0.9% over the past year.
Global government bond yields have risen sharply in the past three months in response to inflation concerns. Bond investors appear to have become more cautious given rising oil prices and guidance from various central banks that they were prepared to further raise interest rates and hold them there. This view of “higher for longer” interest rates has also impacted global share markets. By contrast, corporate bonds have been more resilient. The current levels of corporate yields have proven more appealing to investors.
During the September quarter we made some changes to our fixed income strategy, impacting the building blocks used for securitised debt and Australian short duration credit strategies. We believe the changes will provide better risk-adjusted return outcomes and will generate better and more consistent returns for our diversified fund investors in an environment of higher, more normalised, bond yields.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Fund-Profile-Tool-Fund-Commentary-MLCA.pdfJune, 2023
The fund delivered a negative return of -1.1% for the quarter and 0.7% in the year to 30 June 2023 (before fees and tax). The fund outperformed the benchmark return by 0.5% for the quarter and 0.6% over the past year.
Global government bond yields have risen in the past three months. Better global economic activity and tough talk from central banks on the need to reduce inflation have driven higher bond yields. Investors also preferred global shares over bonds given the mania for ‘Artificial Intelligence’ (AI) technology stocks and a stabilisation in the US banking system after March’s ‘Silicon Valley’ crisis.
Corporate bonds have also benefitted from improving risk appetite with narrower credit spreads. Investors are finding the current corporate yields as now providing attractive income potential compared to recent years.
During the June quarter MLC appointed new managers to the fixed income’s extended credit strategy. We believe the addition of Bentham Asset Management and Stone Harbor Investment Partners will provide better risk-adjusted return outcomes for the fund’s extended credit strategy. These new investment manager strategies have diversity of investment approach, insight, and demonstrated ability at outperforming their market benchmarks.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Fund-Profile-Tool-Fund-Commentary-MLC2.pdfMarch, 2023
The fund returned 3.3% for the quarter and -2.8% in the year to 31 March 2023 (before fees and tax). The fund underperformed the benchmark return by 0.2% for the quarter and by 0.3% over the past year.
Global government bond yields fell sharply in the first quarter of this year. Encouraging signs that global inflation pressures have peaked with lower commodity prices and improved supply conditions was the initial driver of lower bond yields. Global banking stresses in March with the failure of three US regional banks and Credit Suisse’s woes then accelerated the fall in government bond yields.
Corporate bonds proved resilient to this global banking stress. There has been some modest increase in credit spreads in March, but investors are finding the current corporate yields as now providing attractive income potential compared to recent years..
Please refer to the ‘Market commentary’ for an overview of what happened in other domestic and global markets over the quarter.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Fund-Commentary-MLC-Diversified-Debt-Fund.pdfMarch, 2023
Performance drivers and positioning of the fund for the recent calendar quarter are explained below. Our investment experts also provide regular investment updates at mlcam.com.au/insights
The fund returned 3.3% for the quarter and -2.8% in the year to 31 March 2023 (before fees and tax). The fund underperformed the benchmark return by 0.2% for the quarter and by 0.3% over the past year.
Global government bond yields fell sharply in the first quarter of this year. Encouraging signs that global inflation pressures have peaked with lower commodity prices and improved supply conditions was the initial driver of lower bond yields. Global banking stresses in March with the failure of three US regional banks and Credit Suisse’s woes then accelerated the fall in government bond yields.
Corporate bonds proved resilient to this global banking stress. There has been some modest increase in credit spreads in March, but investors are finding the current corporate yields as now providing attractive income potential compared to recent years..
Please refer to the ‘Market commentary’ for an overview of what happened in other domestic and global markets over the quarter.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Fund-Profile-Tool-Fund-Commentary-MLC.pdfDecember, 2022
The S&P/ASX300 Property Total Return Index (‘market benchmark’) returned 11.6% in the quarter to 31 December 2022. The fund returned 12.1% (before fees and tax) in the quarter, which was 0.5% above the return of the market benchmark.
A-REITs outperformed Australian equities (ASX300) in the December quarter. But after outperforming the broader equity market in 2021, higher bond yields and debt costs led A-REITs to produce a disappointing total return of -20.06% in 2022. Consequently, A-REITs significantly underperformed relative to the ASX300 which returned -1.8%. Interestingly 2022 was the largest relative underperformance of the sector since 2009.
Over the December quarter, within A-REITs retail, residential developers, industrial and childcare sectors outperformed, whilst office, self-storage and property fund managers underperformed. Operationally, A-REITs generally continue to report no deterioration in tenant demand nor tenant health, with office being somewhat of an exception. A-REIT leverage remains moderate and most companies remain reasonably placed in the face of a likely economic slowdown in 2023.
In terms of retail, malls remain stable, and metrics were encouraging. High occupancy (98.5%+) reflects retailers recognising the importance of bricks and mortar stores. As a result, retailers are investing in their physical locations as part of their omni-channel sales strategies. As a read-through from offshore markets, U.S. retailer Target (no relation to Target Australia) intends to lease larger stores to support digital/online sales fulfilment.
Office conditions remain challenging and workers returning to the office has been slow. For office REITs leased occupancy is typically in the range of 90-95% which is above elevated office market vacancy rates of ~13-15% in Sydney and Melbourne. Likely higher unemployment in 2023 will weigh and there are early signs of job losses in the technology sector. Incentives of 30-40% of rent offered to tenants by landlords highlights the lack of pricing power. Despite the elevated vacancy rates, several A-REITs intend to develop more office space in order to take market share as office employers seek newer buildings with superior amenity in order to attract and retain office workers.
Residential land and apartment sales have fallen dramatically as higher interest rates constrict home buyer borrowing capacity and dampen sentiment. CoreLogic data indicates national house prices have declined 8% since the peak in May 2022, reflecting the fastest fall on record. Notably, house prices remain above pre-pandemic levels. Buyer enquiry has moderated to pre-pandemic levels and defaults remain low, though Stockland for example is expecting defaults to rise by Jun-23.
The fund returned -18.9% (before fees and tax) in the year to 31 December 2022. This was 1.1% above the market benchmark, with Resolution Capital providing the majority of the funds outperformance.
Please refer to the ‘Market commentary’ for an overview of what happened in other domestic and global markets over the quarter.
File:September, 2022
The S&P/ASX300 Property Total Return Index (‘market benchmark’) returned -6.9% in the quarter to 30 September 2022.
The fund returned -6.2% (before fees and tax) in the quarter, which was 0.7% above the return of the market benchmark.
Against a tough macroeconomic backdrop, Australian Real Estate Investment Trusts (A-REITs) underperformed Australian shares for the September quarter. Within A-REITs, retail, diversified and self-storage outperformed whilst industrial, office and childcare underperformed.
In terms of retail, malls positively surprised with improved operating metrics as footfall recover, however leasing spreads remain negative, which means that the rents on new leases remain below previous passing rents at lease expiry. We also note that grocery anchored shopping centres remain resilient and continue to benefit from the ‘shopping local’ trend.
Fundamentals remain challenged in office markets. Market vacancies remain elevated at ~14-15% in Sydney and Melbourne, though A-REITs on average reported a slight improvement in occupancy to ~94% as leasing activity picked up.
A-REITs continue to message a “flight to quality” theme with tenants preferring new, modern buildings with excellent amenity to attract and retain staff. Therefore, operating conditions remain stronger for premium and A-grade assets whilst obsolescence risk is rising for lower quality buildings,
In the industrial subsector fundamentals remain strong. Low market vacancy of <1% combined with robust tenant demand is resulting in accelerating double digit market rent growth. The fund returned -19.9% (before fees and tax) in the year to 30 September 2022. This was 1.2% above the market benchmark’s -21.1% return, with Resolution Capital providing the majority of the fund’s outperformance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Screen-Shot-2022-10-30-at-02.38.44.pngJune, 2022
The S&P/ASX300 Property Total Return Index (‘market benchmark’) returned -17.5% in the quarter to 30 June 2022. The fund returned -17.1% (before fees and tax) in the quarter, which was 0.4% above the return of the market benchmark.
Australian Real Estate Investment Trusts (A-REITs) underperformed broader shares during the June quarter as A-REITs typically have more debt in their capital structures than broader shares, which increase earnings sensitivity to rising debt costs. Similar to last quarter, the A-REIT sectors which outperformed this quarter included retail, office and childcare.
Underperforming sectors included self-storage, the higher growth-oriented property fund managers and industrial landlords, and interest rate sensitive residential companies. Retail outperformed the benchmark this quarter. The sector includes landlords which own defensive, non-discretionary retail assets including grocery-anchored shopping centres, bunnings warehouses and service stations. The office sector only marginally outperformed with primary constituent Dexus (DXS) announcing a significant transaction to acquire Collimate Capital’s (formerly AMP Capital) $28bn domestic real estate and infrastructure funds management platform.
Real estate leased to the childcare industry remains a favoured sector of one of our property managers. They are positive given the strong inflation protection afforded by long dated leases which escalate annually by the greater of 2.5% or inflation, disciplined management teams and lowly levered balance sheets. The sector stands to benefit from additional funding from the new federal government for its tenants.
Industrial A-REITs underperformed this quarter, including heavyweight developer and fund manager Goodman Group (GMG). GMG upgraded 2022 financial year (FY2022) earnings growth guidance to 23% from 20% and highlighted strong operating fundamentals and continued growth in its high margin development pipeline. However, its performance was likely dragged by the same macroeconomic sentiment weighing on global industrial REIT’s due in part to e-commerce giant Amazon, and GMG’s largest tenant (11% of rent), flagging its intention to sublet excess US warehouse expansion space, after having doubled its footprint in recent years.
The outlook for the residential development sector remains challenging, after several years of buoyant conditions aided by government stimulus and low interest rates. Diversified REITs Stockland (SGP) and Mirvac (MGR) issued quarterly updates in which they reaffirmed FY2022 guidance for ~7% earnings growth.
The fund returned -10.3% (before fees and tax) in the year to 30 June 2022. This was 0.9% above the market benchmark’s -11.2%% return, with Resolution Capital providing the majority of the funds outperformance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Screen-Shot-2022-08-18-at-07.11.16.pngMarch, 2021
The S&P/ASX300 Property Total Return Index (‘market benchmark’) returned -0.6% in the quarter to 31 March 2021.The fund returned -0.4% (before fees and tax) in the quarter to 31 March 2021, which was 0.2% above the return of the market benchmark.
After recording a very strong 13.2% return in the December quarter following news in November of three vaccines with high efficacy against COVID-19, the sector effectively marked time this quarter. The significant increase in local and offshore bond yields was one reason why the sector underperformed the broader share market, even though the financial results reporting period indicated improved circumstances for many Australian real estate investment trusts (A-REITs).
As the economy has recovered and COVID-19 disruption has eased, rent collections have improved dramatically, enabling many A-REITs (especially retail property landlords) to partly reverse prior conservative provisioning. In addition, more A-REITs felt able to provide earnings or distribution guidance for the year ahead. As for occupancy conditions, overall retail occupancy for the A-REIT sector has remained surprisingly strong, declining overall by only 0.10% over the last six months to 98.2%. However, the economic impacts associated with COVID-19 has dampened demand for office space. Vacancy rates are increasing due to tenants reducing their space requirements or subleasing space. Whilst rents are broadly holding firm, tenant lease incentives are increasing to varying degrees. Despite softening net effective rents, investor demand for office properties remains strong and capital values are holding firm.
File:December, 2020
The S&P/ASX300 Property Total Return Index (‘market benchmark’) returned 13.2% in the quarter to 31 December 2020.
The fund returned 12.6% (before fees and tax) in the quarter to 31 December 2020, which was 0.6% below the return of the market benchmark.
The news in November of three vaccines with high efficacy against COVID-19 lifted Australian real estate investment trust (A-REIT) share prices across the board and saw investors refocus on property sectors who have struggled due to the virus. Retail was the best performing sector this quarter as the rollout of vaccines in 2021 is expected to boost patronage of shopping centres, especially those with an exposure to discretionary retail spending. Share prices of shopping mall owners Scentre Group and Vicinity Centres rebounded strongly in the quarter. Diversified A-REITs with residential development activities also performed well during the quarter, with Mirvac reversing some of its recent underperformance. In contrast and unlike recent quarters, industrial property A-REITs were relatively subdued. The office-based A-REITs tended to underperform the sector return as tenant demand for office space remains relatively weak and rents are flat due to rising vacancy rates.
The fund’s below index return in the quarter was due to Resolution Capital’s underperformance of the market benchmark, which offset Antares’ outperformance. The managers have been cautious in their stock selection, favouring high quality A-REITs with good tenants and management teams. These portfolio preferences are considered very appropriate for the uncertain outlook given the decline in economic activity, unexpected government policy responses and short-term shifts in investor sentiment.
The fund returned -1.4% (before fees and tax) in the year to 31 December 2020. This was 2.6% better than the market benchmark’s -4.0% return and was due to the substantial outperformance of Resolution Capital, which offset Antares’ underperformance.
File:asset_class: Property and Infrastructure
asset_category: Australian Listed Property
peer_benchmark: Property - Australian Listed Property Index
broad_market_index: ASX Index 200 A-REIT Index
manager_contact_details: Array
ticker: MLC0263AU
release_schedule: Quarterly
commentary_block: Array
factsheet_url:
https://www.mlc.com.au/fundprofile/flow/fundProfile?execution=e1s3
Performances
Commentaries
Fund Commentaries
(no pdf file)
fund_features:
MLC Wholesale Property Securities is designed to be a complete portfolio for the Australian property securities asset class, and aims to deliver growth by using investment managers that invest and diversify across many listed Real Estate Investment Trusts and companies within that asset class. The fund invests primarily in Australian property securities, including listed Real Estate Investment Trusts and companies across most major listed property sectors. It doesn’t normally invest in direct property, but may have some exposure to property securities listed outside of Australia from time to time.
structure: Managed Fund