About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds Other Sites:   tmmonline.nz  |   landlords.co.nz
Last Article Uploaded: Monday, December 10th, 10:20PM
rss
Investment News

Harbour builds a new real estate fund

Harbour Asset Management is adding a real estate fund to its offerings as a defensive tool for investors.

Thursday, October 4th 2018, 8:16AM

The Harbour Real Estate Investment Fund (REIF) provides investors with exposure to the long-term defensive growth listed real estate asset class.

Portfolio manager Shane Solly says the fund will predominately invest in listed Australian and New Zealand property funds, but it will also have the ability to invest in other markets and unlisted funds.

To be included securities which are neither in a listed property security nor in a REIT benchmark indices, underlying profit certainty needs to be high.

Like other Harbour products the fund will be actively managed and will look to capture inefficiencies in the market.

“Harbour’s research shows that listed real estate may not be the passive investment class that many investors think it is,” Solly says.

He says there is a wide variance in returns from listed property securities which can be exploited through active management.

“This suggests that investor returns may be enhanced, and risks reduced, by actively and selectively managing investments in listed real estate assets, where supported by a strong research process.”

The divergence in returns can be observed by the difference in returns from individual securities across benchmark indices.  

The S&P/NZX All real estate index delivered a 15.9% total return over the 12 months to September 27, 2018 – but within the overall market returns Goodman Property delivered a 25.7% total return, Vital Healthcare delivered -0.8% and market heavy weight Kiwi Property delivered a 9%.

The Australian S&P/ASX 200 property index is up 13.9% over the same one-year period but the spread of total return to investors over the period ranged between 41% for Charter Hall and 30% for Goodman Group, and – 5% for Abacus and just 3% for market heavy weight Stockland and 5% for Vicinity.

Solly says to enhance returns and diversify risk, the Harbour REIF will invest in real estate sectors not included in the New Zealand listed market, such as multifamily residential, student accommodation and data centres, predominantly by investing in real estate securities listed on the Australian market, but from time to time may include internationally listed property securities or local unlisted property securities.

An example of international listed investment would be investing in the European listed Unibail Rodamco Westfield, which recently took over Australian listed Westfield.

EXTENSIVE RESEARCH

Harbour has done extensive research on the real estate sector to better understand where returns come from and what assets are closely correlated.

The research shows New Zealand’s M1 narrow money supply had the highest correlation with the returns for New Zealand listed real estate securities.

“M1’s relatively high positive correlation with real estate returns suggests that as private sector credit increases, businesses are more inclined to expand activity, supporting demand for commercial real estate including the take up of space and willingness to pay higher rentals,” he says.

New Zealand 10-year government bonds had the second highest correlation with  listed real estate securities.

“NZ 10-year government bonds relatively high negative correlation with real estate returns may be explained by income investors seeking the higher yield of low volatility listed real estate securities as long-term bond interest rates fall, and reducing exposure to listed real estate as long term government bond interest rates increase.”

RETURN EXPECTATIONS

The Harbour REIF’s objective is to deliver an income plus growth return based on the economics of real estate investments for New Zealand based investors.

The REIF is benchmarked against the S&P/NZX All Real estate industry Group Index, which is predominantly composed of securities with high quality real estate assets, which provides a solid base for long term investment for many New Zealand investors. 

The PIE tax status of the majority of securities included in the S&P/NZX All Real estate industry Group Index also provides some tax advantages for some New Zealand investors

While the S&P/NZX All real estate index provides a solid base for investor returns, with its sustainable current average spot 4.8% cash, tax paid dividend yield (before PIE tax benefits) providing a good core for investment, its narrow focus of the S&P/NZX All real estate index limits growth potential. 

Average earnings for the S&P/NZX All real estate index are expected to grow by less than 5% annually over the next few years.

Solly says potential New Zealand tax changes provide a potential upside to growth.

The fund will use Harbour’s ESG Corporate Behaviour scores which highlight long term risks within potential investments and favours those investments with better corporate behaviour practices.

While the Harbour REIF has significant flexibility, it has strict exposure limits which limit risk and ensure that the fund’s key return objectives of income plus growth are delivered through time. Examples of the limits include:

  • A minimum of 50% of fund assets must be invested in New Zealand listed property securities
  • A maximum of 25% of fund assets may be invested in Australian listed property securities
  • A maximum of 10% of fund assets may be invested in International listed property securities
  • A maximum of 10% of fund assets may be invested in unlisted property securities

Solly says the real estate cycle may not be different to the pre-GFC environment, but the companies are.

“Commercial property valuation metrics are full versus history – but remain attractive versus bond yields – and rental growth prospects remain positive.”

There will be variations in what parts of the real estate sector do well – for example, there are structural challenges for retail property (clicks vs bricks), structural tail winds for industrial property owners (limited supply at economic prices, strong demand reflecting changing business models that focus on supply chain flexibility).

He says companies are better positioned than pre GFC.
They have lower debt levels compared to 10 years ago, and greater diversity of debt sources including from bond issues.

Dividend pay-out policies are increasingly based on more conservative measures that take account of stay in business maintenance capex and short-term tenant incentives.

Also income risk has been reduced as there is more investment grade property with high occupancy rates and and the weighted average lease terms now sit around five-years plus.

And finally, governance is generally better then before the GFC with more independent boards.

Tags: Harbour Asset Management

« Solid global economy and equity returnsKey themes and conclusions from the past 10 years »

Special Offers

Comments from our readers

No comments yet

Sign In to add your comment

 

print

Printable version  

print

Email to a friend

Good Returns Investment Centre is bought to you by:

Subscribe Now

Keep up to date with the latest investment news
Subscribe to our newsletter today

FundSource Research
  • Castle Point Trans-Tasman Fund
    23 November 2018
    The Castle Point Trans-Tasman Fund is a ‘long-only’ Trans-Tasman equity product. The benchmark for the Fund is the S&P/NZX 50 Gross Index....
  • Fiducian technology Fund
    23 November 2018
    The Fiducian Technology Fund provides investors with exposure to a long only, sector specific equities portfolio, focused on globally listed technology...
  • Nikko AM Core Equity Fund
    23 November 2018
    The Nikko AM Core Equity Fund is wholesale unit trust that invests predominantly in to New Zealand equities, and to some lesser extent Australian equities...
© 2018 FundSource Research.

View more research papers »

Edison Investment Research
  • Deutsche Beteiligungs
    7 December 2018
    Building future potential
    Deutsche Beteiligungs (DBAG) reported FY18 net income of €33.6m, at the top of management’s guidance range, with a 7.8% dividend-adjusted NAV...
  • Henderson Alternative Strategies Trust
    7 December 2018
    More defensive in response to macro headwinds
    Henderson Alternative Strategies Trust (HAST) aims to provide a ‘one-stop shop’ for investors seeking to allocate to specialist and alternative...
  • Witan Investment Trust
    6 December 2018
    Global equity exposure via specialist managers
    Witan Investment Trust (WTAN) offers investors broad exposure to global equities via a multi-manager strategy. The trust’s investment director, James...
© 2018 Edison Investment Research.

View more research papers »

Today's Best Bank Rates
Heartland Bank 2.50  
Heartland Bank 2.50  
Based on a $50,000 deposit
More Rates »
Cash PIE Rates

Cash Funds

Institution Rate 33% 39%
ANZ 0.10    0.10    0.11
ASB Bank 0.40    0.41    0.42
ASB Bank 0.55    0.59    0.56
ASB Bank 0.60    0.61    0.64
ASB Bank 0.65    0.66    0.69
ASB Bank 0.70    0.72    0.75
BNZ 0.10    0.10    0.10
Heartland Bank 2.25    2.59    2.70
Kiwibank 0.75    0.77    0.88
Kiwibank 1.75    1.81    1.89
Nelson Building Society 3.75    3.90    4.08
SBS Bank 1.50    -    -
TSB Bank 1.60    1.64    1.71
Westpac 0.35    0.36    0.38
Westpac 0.10    0.10    0.11
Westpac 2.10    2.16    2.26

Term Funds

Institution Rate 33% 39%
ANZ Term Fund - 90 days 2.65    2.60    2.79
ANZ Term fund - 12 months 3.40    3.39    3.55
ANZ Term Fund - 120 days 3.00    3.09    3.22
ANZ Term fund - 6 months 3.25    3.45    3.60
ANZ Term Fund - 150 days 3.00    -    -
ANZ Term Fund - 9 months 3.40    -    -
ANZ Term Fund - 18 months 3.45    -    -
ANZ Term Fund - 2 years 3.50    -    -
ANZ Term Fund - 5 years 3.80    -    -
ASB Bank Term Fund - 90 days 2.60    2.67    2.79
ASB Bank Term Fund - 6 months 3.20    3.29    3.43
ASB Bank Term Fund - 12 months 3.20    3.33    3.48
ASB Bank Term Fund - 18 months 3.50    3.65    3.81
ASB Bank Term Fund - 2 years 3.65    3.81    3.98
ASB Bank Term Fund - 5 years 4.10    4.28    4.48
ASB Bank Term Fund - 9 months 3.60    3.75    3.92
BNZ Term PIE - 120 days 2.90    -    -
BNZ Term PIE - 150 days 2.95    3.38    3.53
BNZ Term PIE - 5 years 4.00    3.86    4.04
BNZ Term PIE - 2 years 3.50    3.91    4.09
BNZ Term PIE - 18 months 3.45    3.65    3.81
BNZ Term PIE - 12 months 3.40    3.38    3.53
BNZ Term PIE - 9 months 3.25    3.44    3.60
BNZ Term PIE - 6 months 3.25    3.75    3.92
BNZ Term PIE - 90 days 2.65    2.72    2.85
Co-operative Bank PIE Term Fund - 6 months 3.40    -    -
Heartland Bank Term Deposit PIE - 12 months 3.60    3.53    3.69
Heartland Bank Term Deposit PIE - 6 months 3.45    3.43    3.58
Heartland Bank Term Deposit PIE - 9 months 3.50    3.85    4.02
Heartland Bank Term Deposit PIE - 18 months 3.60    -    -
Heartland Bank Term Deposit PIE - 2 years 3.70    3.43    3.58
Heartland Bank Term Deposit PIE - 5 years 3.90    3.85    4.02
Kiwibank Term Deposit Fund - 90 days 2.75    2.83    2.96
Kiwibank Term Deposit Fund - 6 months 3.30    3.39    3.55
Kiwibank Term Deposit Fund - 12 months 3.50    3.39    3.55
Kiwibank Term Deposit Fund - 150 days 3.15    3.65    3.81
Kiwibank Term Deposit Fund - 120 days 3.00    3.09    3.22
Kiwibank Term Deposit Fund - 9 months 3.35    3.39    3.55
Westpac Term PIE Fund - 150 days 3.00    2.88    3.00
Westpac Term PIE Fund - 120 days 3.30    3.38    3.53
Westpac Term PIE Fund - 18 months 3.50    3.29    3.43
Westpac Term PIE Fund - 12 months 3.50    3.49    3.65
Westpac Term PIE Fund - 6 months 3.30    3.44    3.60
Westpac Term PIE Fund - 9 months 3.35    3.17    3.32
Westpac Term PIE Fund - 90 days 2.75    2.56    2.67
Westpac Term PIE Fund - 2 years 3.70    3.79    3.96
About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox
 
Site by Web Developer and eyelovedesign.com