Planting the seed of change: real estate's role in the nature crisis

28 Mar 2024 - abrdn

How can real estate reduce its negative impact on nature?

28 Mar 2024 - Planting the seed of change: real estate's role in the nature crisis

By: abrdn

Planting the seed of change: real estate's role in the nature crisis

abrdn

March 2024

Since publishing our climate change approach for our direct real estate portfolio in 2020, we have focused on mitigating climate risks and decarbonising our real estate portfolios. But our real estate environmental, social and governance strategy also considers wider environmental and social topics, including those associated with nature and in particular biodiversity . How can real estate reduce its negative impact on nature? And how can it have a positive impact and contribute to climate solutions?

A focus on nature

We are experiencing a nature and climate crisis. While the spotlight has previously been on climate change, nature is now sharing centre stage. The two issues are interdependent.

Some key initiatives have caused real estate investors to sit up and pay attention to the relationship between buildings and nature.

The final framework of the United Nations' Taskforce for Nature Related Financial Disclosure (TNFD) was released last autumn, which sets out a framework for companies to report their impact on nature.
The introduction of the Biodiversity Net Gain legislation in England in February requires at least a 10% biodiversity net gain for new developments.

How does real estate affect nature?

Real estate contributes directly to four of the five main drivers of nature loss. Therefore, action to reduce the impact in these areas can also reduce risks for real estate assets.

Five drivers of nature loss

Climate change

Buildings contribute to almost 40%[1] of global greenhouse gas emissions because of their heating, lighting and cooling requirements. It is imperative that buildings are decarbonised to reduce greenhouse gas emissions and to mitigate climate change.
Resource exploitation

Buildings require raw materials such as cement, steel and sand. The challenge for real estate developers is to understand where and how these are sourced in the supply chain and how to change practices to be more sustainable. For example, developers can use recycled steel and concrete or responsibly sourced timber. This can help reduce the impact on nature and provide a more dependable supply.
Land- and sea-use change

Real estate has changed land use. Legislation, such as the Biodiversity for Net Gain for development in England and Wales, can help to ensure that biodiversity is maintained and improved on-site. This can be achieved by introducing green walls or roofs, and by maintaining existing shrubs and trees. But real estate investors and local authorities should prioritise building on brownfield sites (previously developed land) to avoid expanding into greenbelt areas.
Pollution

Contaminated land risks from fuel or toxic-waste leakages are a concern if waste is stored inappropriately at real estate assets. Prevention and remediation of contamination is essential.
Invasive alien species

While real estate doesn't affect invasive species, certain plants can present risks to real estate investments. For example, Japanese knotweed can de-value an asset and affect the stability of a building.

Green infrastructure creates a positive impact

Real estate provides the unique opportunity to have a positive impact at the construction phase of a building, particularly in terms of design. This may involve maintaining existing green areas or improving habitats that are in poor condition. But it can also have a positive impact in the post-construction phase, by implementing green infrastructure (see examples below). This can promote local biodiversity and contribute to climate change mitigation and adaptation. Real estate can also have a positive social impact and provide operational efficiencies.

Types of green infrastructure [2]

Sustainable drainage system

Using green infrastructure as a sustainable drainage system can:

- retain 60-72% rainwater run-off, which helps flood mitigation.
- provide 60-80% species richness, which is similar to that of a natural pond.
Street trees

Having trees next to and around buildings can:

- reduce the air temperature by up to three degrees.
- provide carbon sequestration (absorbing carbon dioxide) from the atmosphere.
Green roof

Vegetation growing horizontally on a roof of a building can:

- provide a 6.7% energy saving for the space directly underneath the roof by providing insulation.
- reduce noise by 11 decibels.
Green wall

Vegetation growing vertically on a wall can:

- provide an energy saving of up to 8% for the adjacent space.
- reduce the indoor temperature by 2.7 degrees.
- improve local exterior air quality by removing nitrous oxides.

How does nature benefit real estate investment performance?

Green infrastructure can have a positive impact on people, by improving the aesthetics of a building, reducing energy costs, minimising flood remediation costs and improving local air quality. Studies show that there can be a 10% increase in willingness to pay for assets that offer green cover. Green infrastructure can increase property values by around 9.5%. And buildings in close proximity to parks or green spaces also benefit from higher values. Real estate assets with green infrastructure are more attractive to tenants, which can help to reduce void periods and increase rental values.

Real estate has a key role to play in the nature crisis. It can reduce its negative impact on nature, and it can have a positive impact and contribute to climate solutions. Nature also has the potential to enhance investment returns and to make buildings more attractive to owners, tenants and communities.

Author: Georgie Nelson, Head of ESG, Real Estate

Funds operated by this manager:

Source:

^1. United Nations Environment Programme (March 2022) Managing Transition Risk in Real Estate: Aligning to the Paris Climate Accord.
^2. Millennium Ecosystem Assessment (2005). Millennium Ecosystem Assessment: Ecosystems and human wellbeing. Biodiversity Synthesis. Washington DC: Island Press.

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How to Handle a Correction

27 Mar 2024 - Marcus Today

It has been one year since the bottom of the market on March 23, 2020. Since then, the ASX 200 is up 65.5%... if you bought at the absolute low and sold a year later.

27 Mar 2024 - How to Handle a Correction

By: Marcus Today

How to Handle a Correction

Marcus Today

March 2024

It has been one year since the bottom of the market on March 23, 2020. Since then, the ASX 200 is up 65.5%... if you bought at the absolute low and sold a year later.

ASX 200

For any fund manager getting abused for not achieving 54.44% in the post-pandemic recovery year, you might point out to your complaining client that the 54.44% was from the lowest low, which existed for a micro-instant on March 23rd 2020 in the most volatile week in decades. That week the market had a range of 18.9%.

To have achieved 54%, you would have needed not just the the presence of mind (balls) to buy the market at that micro instant low, but you would have had to have done it amidst unprecedented volatility, and you would have had to go in 100% (no cash). And you only had an instant to do it. If you had waited a week and had caught the top in that second week, then the market has only gone up 26.7% in the last 51 weeks, not 54.44%. Half the 51.59%.

Basically, if you missed the bottom of the market by a week and if you had inched in, or pyramided in, not gone all in, you would have lost even more of the gains. There is no one that went in 100% at the bottom.

So just in case you get trolled about your performance, you can ask your investor if they really expected you to go all-in at exactly the right micro-instant.

Truth is, the convenience of hindsight makes it very easy to complain about fund manager performance, and charts extremes are the most fabulous data points for those complaints.

15 Golden Rules From The Pandemic

Here are some of the lessons from the last year. Observations about sharp market corrections and their recovery.

Some of the best bits of the market are the exponential bits ahead of a correction. You have to participate in those exuberant moments or you'll never get the averages, not be too fearful or cautious. Enjoy the exuberant bits. Play the game when it is "on". Laugh all the way to the top. Let the finger-waggers wag, they always do when people make a fortune with little effort.
Corrections are inevitable and regular. Expect a big one every ten years (50%), and a tradeable one every three years (10-20%).
Corrections come quickly. You don't have much time to react. You have to be decisive.
Recoveries come slowly. It's a year from the correction and what we lost in 23 trading days we still haven't recovered. You have plenty of time in the recovery, plenty of time to decide when and what to buy. There's no rush. You never have to catch the knife. The market never crashes up. You do not have to catch the bottom.
If you ever say "I can't buy it, it's gone up 10% in a week" you will fail at investment. If you are the sort of investor who says "It's up 100%, I've missed it", you doom yourself to conservatism. Chickens don't make money. You will never buy a ten-bagger. Forget APT up 780% in a year. Eleven stocks in the All Ordinaries have been ten baggers (up over 1,000%) in the last year. 180 stocks (36% of the All Ordinaries index) have doubled, and 290 (58%) are up more than 50%. Percentages are big in a correction and a recovery. Do not be scared of big percentages. You can buy stocks that have gone up, but in a recovery, you have to buy stocks that have gone up.
No one knows when corrections are coming and those that did, didn't know for sure, they just made a fuss when they discovered (in hindsight) that they made the right noises at the right time.
Do not think you will be so clever as to predict the end before it happens. You can't predict the big sell-offs, just be aware (as now) when some of the ingredients are in place (money printing, excessive debt, rising rates, overvaluation) but don't do anything about the signs of a market correction until the correction begins. We are in the reaction game, not the prediction game. Yes, become more sensitive to the signs the more stupid it gets, but still... wait. And when the precipitous signals turn into a precipitous market, you'll be ready to be decisive.
Corrections are great! They are to be welcomed as an opportunity. Do not fear them, welcome them. Best moments in the market, but not if you pull out, stay out, or deny it's happening.
No one will ever tell you to sell. No one in the industry wants you in cash. They want you in their fund, in their product; trading, speculating, active. To go to cash through a professional will require you to be assertive. To go to cash as an individual seems like a big decision, but really, it's not.
Cash is always king. There is nothing wrong with cash, ever. Even if you get the timing terribly wrong all you miss is "not making money". You can wear that whilst you think. Being in cash is riskless. You have all the power. You can buy tomorrow. Do not be fearful of going to cash. It's no biggie. It's actually very cathartic, especially when things get wild.
Catching the bottom of a correction is all about sentiment. When everyone has lost faith in/sight of fundamentals, you need skills reading the herd, not the numbers. Watch the herd, don't join the herd. Look at the tables above, at the best recovery stocks and their PEs and Yields. Warren Buffett could not have picked those stocks on the numbers. Most of the best stocks combined zero yields and were loss-making. Read the herd, not the numbers. Fundamentals are useless when it comes to timing the market. It's why value investors always emphasise the long term, because they are useless in the short term. "It's a weighing machine, not a voting machine" is just an excuse for giving up on timing the market.
At extreme moments the market drives all, sinks all boats, lifts all boats. Focus all your attention on identifying the "Pivot Point" in the market. In corrections the woods are on the move, forget the trees until the forest is going up again.
Stock selection comes second to the market. After the market pivot point, stock selection is about where you will make the most money, but you have to get the market right first. If you get that right you'll make money in everything.
The recovery will come fastest and hardest in the stocks that have suffered the most extreme sentiment swings. In the last year Qantas, Stockland, EDP Education and Virgin were not the stocks with the best fundamentals (far from it), they were stocks that got the most oversold, so rebounded the most. The money is in identifying and timing the extremes of sentiment in stocks as well.
Don't bother to buy defensive stocks when the correction starts. Do you remember A2M, FPH, TLS and WOW performing better than the rest of the market when the market fell over? They had a "moment" of outperformance. But in the recovery, they have been some of the worst performers. Defensive stocks will not serve you well at any time. Leave them to the fund managers who concern themselves with their own relative, not actual, performance. For an individual investor, there is almost no point at which you would want to buy a "defensive" stock. They make less money in the recovery and there is no point holding the stock that loses you less money in a correction.

At the end of the day, the pandemic year has been great for us as investors. It has been a year of fabulous opportunities. Hopefully you played the game. Look forward to the next great correction. Hopefully we'll all have the vigilance, experience and courage to exploit it, not run from it.

Author: Marcus Padley

Funds operated by this manager:

Marcus Today Equity Income SMA, Marcus Today Growth SMA

Australian Secure Capital Fund - Market Update

26 Mar 2024 - Australian Secure Capital Fund

The first weekend of March saw 2019 auctions take place across the combined capital cities, down slightly on the previous year's 2,054, however clearance rates were up, 71.8% in comparison to 66.3% in 2023.

26 Mar 2024 - Australian Secure Capital Fund - Market Update

By: Australian Secure Capital Fund

Australian Secure Capital Fund - Market Update

Australian Secure Capital Fund

March 2024

The first weekend of March saw 2,019 auctions take place across the combined capital cities, down slightly on the previous year's 2,054, however clearance rates were up, 71.8% in comparison to 66.3% in 2023. Melbourne once again led the way, with 1,038 auctions taking place, followed by Sydney with 721, well above that of the other capitals, with Brisbane, Adelaide, Canberra and Perth recording 103, 85, 69 and 3 auctions respectively.

The preliminary clearance rate of 71.8% for the weekend indicates that buyers and sellers are on the same page for the most part, particularly in Sydney where a clearance rate of 76.8% was achieved, well above the 68.7% of the same weekend last year.

Melbourne, Adelaide, Brisbane and Canberra all managed to achieve clearance rates of above 60% for the weekend, with 70.1%, 69.4%, 65.0% and 63.8% respectively. It is interesting to note that all capital cities achieved a greater clearance rate than the same weekend in 2023, other than Adelaide, where a 72.9% clearance rate was achieved on the same weekend last year.

February brought yet another strong month for property prices, with CoreLogic's Home Value Index showing a 0.6% increase across the combined capitals and combined regionals, with all capital cities experiencing growth except for Hobart, where prices fell by 0.3% for the month.

Once again, Perth experienced the greatest level of growth, increasing by a mammoth 1.8% for the month, contributing to a 5.2% quarterly growth and an increase of 18.3% annually. Adelaide also experienced strong monthly growth of 1.1%, followed by Brisbane with a further 0.9% increase, bringing the median property value of Brisbane above $800,000 for the first time, with a median value of $805,593, the second highest median value nationally, behind only Sydney with $1,128,155. Canberra, Sydney and Melbourne also experienced growth for the month of 0.7%, 0.5% and 0.1% respectively, with all cities except for Hobart (-0.6%) and Darwin (-0.1%) experiencing an annual increase.

Whilst there was no RBA meeting this month, economists continue to believe we are at the end of the rate hike cycle, with many expecting interest rate reductions before the end of 2024. Should interest rates ease, we expect that there will be a bump in property prices.

Clearance Rates & Auctions week of 4^th of March 2024

Property Values as at 1^st of March 2024

Median Dwelling Values as at 1^st of March 2024

Quick Insights

Values to Outperform

Two-fifths of valuers surveyed by CBRE have predicted house prices to outperform by up to 10% in Adelaide, Perth, and Sydney. Valuers were also relatively bullish on the apartment sector with 44 per cent predicting prices to increase over the next 12 months. The survey also highlighted a high level of demand from upgraders and downsizers, buyer segments who were less sensitive to interest rate movements.

Source: Australian Financial Review

Build-to-Rent Builds Steam

Salta Properties, is now surging into the build-to-rent sector, with ambitions to create a $3 billion platform and with its first project in inner-city Melbourne close to completion.

"We could see that we were heading into a fairly significant housing shortage in Melbourne, and more broadly across Australia," said Sam Tarascio, manager of the firm. The first block is a 94-unit project in trendy Fitzroy North at 249 Queens Parade.

To be known as Fitzroy & Co, the building has topped out and is on track to welcome first residents from July into their one, two and three-bedroom apartments. Those tenants can expect a range of resident services, access to shared spaces and a variety of amenities.

Source: Australian Financial Review

Author: Filippo Sciacca, Director - Investor Relations, Asset Management and Compliance

Funds operated by this manager:

ASCF High Yield Fund, ASCF Premium Capital Fund, ASCF Select Income Fund

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New Funds on Fundmonitors.com

25 Mar 2024 - FundMonitors.com

Here are some of the latest additions to our database. Follow the links to view each fund's profile, where you'll have access to their offer documents, monthly reports, historical returns, performance analytics, rankings, research,...

25 Mar 2024 - New Funds on Fundmonitors.com

By: FundMonitors.com

New Funds on FundMonitors.com

Below are some of the funds we've recently added to our database. Follow the links to view each fund's profile, where you'll have access to their offer documents, monthly reports, historical returns, performance analytics, rankings, research, platform availability, and news & insights.

Perpetual Smaller Companies Fund

Inception date:	October 1996	Minimum initial investment:	AU$25,000
Strategy:	Equity Long	Distributions:	6 Monthly
Geographic mandate:	Australia	Management fee:	1.25%
Investor type:	Retail	Performance fee:	Nil

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Perpetual Strategic Capital Fund - Class A

Inception date:	November 2023	Minimum initial investment:	AU$25,000
Strategy:	Equity Long	Distributions:	6 Monthly
Geographic mandate:	Australia/Global	Management fee:	0.90%
Investor type:	Retail	Performance fee:	25.00%

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Altius Sustainable Bond Fund

Inception date:	November 2014	Minimum initial investment:	AU$5,000
Strategy:	Fixed Income	Distributions:	Quarterly
Geographic mandate:	Australia/Global	Management fee:	0.37%
Investor type:	Retail	Performance fee:	Nil

View Profile

GCQ Flagship Fund (Class P)

Inception date:	July 2022	Minimum initial investment:	AU$50,000
Strategy:	Equity Long/Short	Distributions:	6 Monthly
Geographic mandate:	Global	Management fee:	1.25%
Investor type:	Wholesale & Retail	Performance fee:	15.00%

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Hedge Clippings | 22 March 2024

22 Mar 2024 - FundMonitors.com

While everyone (or nearly everyone) is comfortable that the direction of the next interest rate move is downwards, anyone hoping for clarity on the timing of a cut in Australia would have been disappointed by the RBA's post meeting...

22 Mar 2024 - Hedge Clippings | 22 March 2024

By: FundMonitors.com

Hedge Clippings | 22 March 2024

While everyone (or nearly everyone) is comfortable that the direction of the next interest rate move is downwards, anyone hoping for clarity on the timing of a cut in Australia would have been disappointed by the RBA's post meeting statement this week. Just take the final paragraph of Michele Bullock's media statement:

"While recent data indicates that inflation is easing, it remains high ... it will be some time yet before inflation is sustainably in the target range. The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain, and the Board is not ruling anything in or out ... and will rely upon the data and the evolving assessment of risks.

In other words, we a) either don't believe the numbers, or b) don't want to fall into the trap that Philip Lore did, and make any prediction.

Over in the US Jerome Powell wasn't much more helpful: While noting that inflation has cooled considerably from its peak, he added, "inflation is still too high, ongoing progress in bringing it down is not assured and the path forward is uncertain."

"The risks are really two-sided here," Powell said. "We're in a situation where if we ease too much or too soon, we could see inflation come back. And if we ease too late, we could see unnecessary harm to employment." In spite of Powell's two-bob-each-way comments, the market took notice of the US Fed's "dot plot" that there would be three movements of 0.25% later in the year.

To be fair to the RBA, there are still some known knowns and resulting known unknowns clouding the issue. In July the Stage lll tax cuts take effect, last week aged care workers were (deservedly, in our opinion) awarded wage rises of up to 28%, and there's a risk of flow ons to other sectors as a result. On top of that unemployment unexpectedly fell to 3.7%, in spite of Australia's population growing by 2.5% to September 2023, 83% of which came from net overseas migration totalling 548,800 people. Given housing starts have been inadequate for the past 10 years to cater for the increase in population, that's likely to keep the cost of buying - or renting - a home higher, adding to the inflation pressure.

Hedge Clippings has been saying for a while that inflation's "last mile" down from 3.4% to a sustainable 2.5% is going to be a slow process, and the RBA's comments above would seem to bear that out.

Meanwhile back to one of our regular, and we have to admit favourite subjects on a Friday afternoon, "The Donald." Trump, who along with his adult sons, is facing somewhat of a liquidity crisis as he battles multiple court cases, ranging from fraud over the value of his New York property empire (bond required of US$355 million, plus interest), through to damages and defamation of E. Jean Carroll following a finding of sexual assault.

To give an Australian flavour to the Donald's news feed, this week he gave a little slap to another of our old favourites, ex PM and now ambassador to the US, none other than Kevin '07 Rudd. It turns out that like us, Rudd has been less than complimentary in the past when referring to Trump, who in turn has added our Kevin to his "List" of those he thinks poorly of. The only hope for Kevin is that while Trump is quick to add names to his list, he is equally quick to remove them if it suits the moment.

Hedge Clippings has an old (nameless) friend who has also been known to add the names of those who have displeased him over the years to his own list, but unlike Trump, once on, the names very rarely, if ever, are taken off!

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Performance Report: Cyan C3G Fund

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The Cyan C3G Fund returned -3.59% in February. Top contributors during the month included Playside Studios, Silk Logistics and Big River Industries, while key detractors included Alcidion and Acusensus. Cyan noted they are seeing improved...

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28 Mar 2024 - Planting the seed of change: real estate's role in the nature crisis

A focus on nature