News
Unless that is, you have been invested in the US Magnificent Seven. It has been a year of extraordinary moves in things we never saw coming.
1 Feb 2024 - A Fairytale of New York (NYSE and the Nasdaq)
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A Fairytale of New York (NYSE and the Nasdaq) Marcus Today December 2023 |
2023 has been a year that most Australian investors would like to forget.
Source: Marcus Today . Source: Marcus Today. Unless that is, you have been invested in the US Magnificent Seven. It has been a year of extraordinary moves in things we never saw coming. Bitcoin is the best performing 'asset' - and I use that term loosely. US Bond markets have staged an extraordinary rally in the last month or so, as yields spiked and then collapsed. Iron ore has defied gravity and hit $200 in AUD terms, almost back to the halcyon days during CV-19, or the big gains we saw before the GFC - and all this without the bazooka stimulus we have come to expect from the Chinese. In fact, Chinese property seems to have gotten worse over the year. Here, the retailers have had a great year despite all the rate rises. Where was that mortgage cliff that traumatised markets? It's coming apparently. Many have suffered, but we now have a pause in the inflation offensive. Rates are normalising. The last decade was abnormal! What happened to house prices? They just kept going higher.
Source: ABS, APM, CoreLogic, Residex. Trophy homes changed hands at record prices. Young people have given up on the Great Australian Dream. The Bank of Mum and Dad took a pounding this year - if you could find them on their holiday in Europe that is. This time last year, lithium was riding high at extraordinary levels, and now we have gone from rooster to feather duster. Much like another white powder craze in milk powder! White line fever. Remember that? A2 Milk (ASX: A2M) hit 20 bucks - madness. Plenty of that around. Gone now though. Some brokers were sounding the warning bell on lithium prices and were 'pooh-poohed' for their view. As General Melchett once said in Blackadder, you should never pooh-pooh a pooh-pooh. Wise words darling, eh? At one stage this year, we had billionaires fighting to keep lithium assets Australian-owned. Hats off to you Gina. You succeeded. Unfortunately, it was at a cost. Quite a big cost. For everyone. In hindsight, it looks like two bald men fighting over a comb. Origin Energy (ASX: ORG) saw off the 'Brookfield Mounties' after a rear-guard defence from Australian Super, though several other icons fell - Newcrest is no longer and OZ Minerals (ASX: OZL) fell to BHP (ASX: BHP). Is the ASX shrinking to greatness? Then there are the gold miners. Who would have 'thunk' that gold would hit an all-time high whilst rates were going higher? Gold pays no dividends and actually costs money to store. It has always puzzled me why we spend so much time and money digging it up, making it into a nice bar shape, and then burying it again in an underground vault. The sector is up 17%. Still, many things in life puzzle me. I struggled with The Book of Mormon! Was that just me? This year we had the rise of AI and the machine. I thought Nvidia was a skin care product until this year! Even AI didn't see that one coming. We also had a year where GLP-1 drugs offered a 'miracle cure' for obesity, and killed CSL (ASX: CSL) and Resmed (ASX: RMD) in the process. More iconic falls. The consensus last year was that the US economy would experience a recession. The question was whether we were going to get a soft landing or a hard landing. Well, no recession. The experts got that wrong too. In fact, there is not much the experts got right. Oil was supposed to hit $100 due to Ukraine, and then Gaza. Nope. Oil is struggling, even if the Saudis are cutting production. What to expect in 2024.Firstly, experts have no monopoly on making daft predictions. Just because they are on TV or interviewed in the media, I think 2023 shows how wrong they can be. There is one certainty in 2024 that even the experts will get right. The US Presidential Election. Everything to play for, and everything to lose. Are we really headed back to the chaos of the Trump era? It seems a distinct possibility. We are not talking about it yet - but we will. The US Election cycle kicks off early in 2024. The experts are still forecasting a recession and a landing of some sorts in 2024. Hard or soft. Similar arguments triggered a war in Lilliput. Which end of the egg to crack? The markets are now pricing in quite savage rate cuts in the US in 2024. The reason is the US economy is crashing. Is it? I am not sure the Fed will be that aggressive. The economy is slowing, but crashing in an election year seems unlikely. Powell will want to keep his job and the Fed independent. Trump is an agent of change. There are two themes that I think will manifest in 2024. Both out of favour. Both troubled, and both seeing serious negativity. The first one is lithium. At some stage, and we are not there yet, the price will have fallen so much that all that supply coming on stream will struggle to get funding. Plenty of it will be uneconomic. All those gold miners who switched to lithium may have to switch back to gold! Remember the dot-com boom? The miners became web-masters and then had to switch back! When was the last time that we saw a high-profile off-take agreement? Yep, I can't remember one. My 'go-to' would be Pilbara Minerals (ASX: PLS). It still has 20% shorted. A market cap of around $10bn with a cash stash and no problems with the US, as far as Chinese ownership is concerned. Remember when Liontown (ASX: LTR) was valued at nearly $7bn for a project still under construction? We are not at peak bearishness in the sector as yet, but at some stage in 2024, there will be a huge bounce. The other one which has been taken out the back is the oil and gas sector. BHP is looking pretty smart with its jettison of the oil and gas assets to Woodside (ASX: WDS). If you had said there would be a war in the Middle East and interest rates would be at 4.35%, there would not be many experts who would have predicted consumer discretionary stocks would be out partying, and oil and gas stocks suffering from a serious hangover. Yet here we are. I think the sell-down in oil has been overdone. WDS is the premier way to go with this, and I still like Karoon (ASX: KAR), which has de-risked from a one-trick pony with the recent Gulf of Mexico acquisition. Both a big and a smaller one are buys for a better 2024. Finally, I was asked to pick a stock for an Advent Calendar segment recently. I had two that I liked: Treasury Wine (ASX: TWE) for a reopening of China year, and Zip (ASX: ZIP). I know. Crazy, but the US consumer is still spending, just finding different ways to pay. I think we are all guilty of that. Regulation is coming here, and that will provide some certainty. The key is the US, the growth of BNPL, and the pesky ZIP balance sheet. Could 2024 be the year we are talking BNPL again? Maybe, but then again, I have been wrong many times before. Why should this year be any different? The good news is that next year, ChatGPT will be writing a similar article, and I will be redundant. You can blame it then. Author: Henry Jennings, Senior Market Analyst, and Media Commentator |
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Funds operated by this manager: |
31 Jan 2024 - Global Matters: 2024 outlook
30 Jan 2024 - Airlie Quarterly Update - January 2024
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Airlie Quarterly Update - January 2024 Airlie Funds Management January 2024 |
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Emma Fisher provides her perspective on how the Australian equity market played out in 2023 and the outlook for the year ahead. Emma also discusses movements within the portfolio and the approach to position sizing. Funds operated by this manager: Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 trading as Airlie Funds Management ('Airlie') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Determination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a decision about whether to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to an Airlie financial product or service may be obtained by calling +61 2 9235 4760 or by visiting www.airliefundsmanagement.com.au. Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of an Airlie financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. This material may include data, research and other information from third party sources. Airlie makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Airlie. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. Airlie will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material. Any third party trademarks contained herein are the property of their respective owners and Airlie claims no ownership in, nor any affiliation with, such trademarks. Any third party trademarks that appear in this material are used for information purposes and only to identify the company names or brands of their respective owners. No affiliation, sponsorship or endorsement should be inferred from the use of these trademarks. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Airlie. |
25 Jan 2024 - Glenmore Asset Management - Market Commentary
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Market Commentary - December Glenmore Asset Management January 2023 Globally equity markets performed strongly in December. In the US, the S&P500 rose +4.4%, the Nasdaq was up +5.5%, whilst in the UK, the FTSE100 increased +3.8%. Bond markets were a big driver in sentiment towards equities in the month, where bond yields continued to fall as inflation data softened, which in turn has implications for future monetary policy. In the US economy, many bond investors now believe we have seen the peak in interest rates, with prospects for rate cuts in 2024 now a possibility. In Australia, we believe it is more realistic to expect rates to stay at current levels until there is clear evidence that inflation is falling to targeted levels. In the US, the 10-year bond rate fell -42 basis points to close at 3.84%. For context, the bond yield has fallen ~1% from its October highs where it reached just under 5%, which is a very material decrease. In Australia, the 10-year government bond fell -45 basis points to close at 3.96%. The AUD/USD exchange rate appreciated 2 cents to close at US$0.68, as investor risk appetite increased. Funds operated by this manager: |
24 Jan 2024 - How Investors Can Think About the Value of Nature
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How Investors Can Think About the Value of Nature Redwheel December 2023 |
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Nature matters - our individual human experience of nature is precious. Its value is immeasurable. Framing nature as the basis for Natural Ecosystem Services concentrates our focus on the more tangible contributions nature provides the economy and society. Ecosystem Services
Source: World Economic Forum, World Bank as at 2022. The information shown above is for illustrative purposes only and is not intended to be, and should not be interpreted as, recommendations or advice. These Services are commonly categorised as:
For instance, primary, secondary and working forests are a crucial source of Nature Services. Accounting for more than 30% of the planet's land[2], they offer Provisioning Services including timber, fibre, food and medicinal plants. They also provide Regulating Services including a cooling mechanism; local precipitation regulation; protection from soil erosion, landslides and floods; water filtering; and carbon sequestration. Forests offer a range of Cultural services including leisure activities, aesthetic pleasure and psychological benefits to those who enjoy them. They also remain a source of biodiversity with potentially valuable and undiscovered genetic material. Some Natural Services can be replaced with artificial processes. For instance, animal pollination services are worth more than $217 billion a year to the agricultural sector [3] and contribute to 35% of the world's crop production [4]. Many pollinators are threatened by a combination of habitat loss, pathogens and pollution, raising concerns for food security. Artificial pollination methods ranging from manual pollination to experimental micro-drone technology have some limited ability to replicate animal pollination services. In many cases it is simply not feasible to replicate Natural Ecosystem Services. Counting the cost More than half of global GDP is deemed to be highly or moderately exposed to nature [7] ; human health and wellbeing is highly dependent upon its Regulating Services which afford us access to clean air and water. Thus, the degradation of biodiversity and Ecosystem Services represent a material risk to the global economy as well as human health and wellbeing. The World Bank estimates that "business as usual" would result in the loss of $90 - $225 billion of real GDP by 2030, depending on the extent to which natural carbon capture services are lost) [8]. Change is coming Evidence of the physical risk associated with inaction is stimulating policy responses. The historic Kunming-Montreal Global Biodiversity Framework agreed in 2022 sets out twenty-three targets [9] to be achieved by 2030 in order that we remain on track for the long-term goals associated with the 2050 Vision for Biodiversity. Whilst policymakers grapple with the challenges associated with delivering these targets, other stakeholders are beginning to assess both their dependency and impact on nature. We believe, these are crucial first steps towards addressing physical risk associated with dependency and transition risk associated with impact. The Taskforce on Nature-related Financial Disclosures (TNFD) offers guidance and recommendations for the process of measurement and disclosure to enable corporates to quantify the value of nature to their business. This is a key step in the integration of nature into decision making. What we can measure; we can address
Given the critical influence of location on specific dependencies and impacts on nature by individual assets, the accuracy of this step is crucial to assessing the value or materiality of nature to it. It also allows us to understand where and how activities contribute to the degradation of nature and thus where we should focus efforts to limit further damage and address transition risk. The economic case for a nature transition is increasingly clear. As we come to terms with the significance of inaction, it appears policymakers, asset owners, investors, corporates and consumers are increasingly willing to embrace the need for change. The shift is accelerating, demand for solutions is growing and funding sources are emerging to attract investment and innovation. This represents an opportunity for the best of the solutions available now and serves as an incentive for those developing exciting solutions for the future. There is a growing body of products and services which allow the continued production of the goods and services upon which we depend but with a more limited negative impact on the natural ecosystem. We may never be able to fully quantify the value of nature, but we are becoming aware of the cost of its loss. Progress may be slower than the science demands; but it is coming. Whilst updated figures are not available, we have performed further analysis and believe that this data has not significantly changed and is reflective for 2023. Author: Amanda O'Toole, Partner and Portfolio Manager |
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Funds operated by this manager: Redwheel China Equity Fund, Redwheel Global Emerging Markets Fund |
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Sources: [1] Executive-Summary-and-Synthesis-Biodiversity-Finance-and-the-Economic-and-Business-Case-for-Action.pdf (oecd.org) [2] Forests, desertification and biodiversity - United Nations Sustainable Development [3] Updated-10.23.20-FINANCING-NATURE_Exec.-Summary_Final-with-endorsements_101420.pdf (paulsoninstitute.org) [4] FAO's Global Action on Pollination Services for Sustainable Agriculture | Food and Agriculture Organization of the United Nations [5] Global Assessment Report on Biodiversity and Ecosystem Services | IPBES secretariat [6] Deforestation and Forest Loss - Our World in Data [7] It's Now for Nature: Turning nature ambitions into action through the Nature Strategy Handbook - PwC UK [8] World Bank Document [9] COP15: Final text of Kunming-Montreal Global Biodiversity Framework | Convention on Biological Diversity (cbd.int) Key Information |
23 Jan 2024 - 10k Words | January 2024
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10k Words Equitable Investors January 2024 Will Australian consumers join the upswing in sentiment in 2024? What happened to the heavyweights of the S&P 500 from the 1980s? Let's take a look at what is happening with the skewed weightings and returns in that index today. Equity volatility has been low while all the action was in bonds in CY2023. Bespoke charts the history of US rates, inflation and Fed commentary as fund managers position for lower rates. Finally, Fitch paints a picture of deterioration for Greater China. Consumer sentiment has bounced materially off 2022 lows in most advanced economies... apart from Australia
Source: @IFM_Economist, Industry Funds Management
Top 10 weightings in the S&P 500 in the 1980s
Source: marketsentiment.co
Combined weighting of Apple & Microsoft in the S&P 500 today
Source: Crescat Capital, Bloomberg
Top 10 largest weightings' contribution to S&P 500 return
Source: FactSet
Forward P/E ratios on Top Ten, broader S&P 500 & small cap S&P 600 Source: Bespoke
% of S&P 500 stocks that outperformed the index (through to Dec 14, 2023)
Source: Richard Bernstein Advisors
Volatility Index (VIX) yearly average 1990-2023
Source: @charliebilello, Creative Planning
US bond market volatility v equity market volatility
Source: Bloomberg Fed Funds Rate, US CPI YoY & select commentary from Powell
Source: Bespoke % fund managers expecting lower long-term rates
Source: Bank of America Global Fund Manager survey
Market expectations for Fed Funds Rate
Source: @charliebilello, Creative Planning
Overall trends in Greater China sector credit outlooks
Source: Fitch January Edition Funds operated by this manager: Equitable Investors Dragonfly Fund Disclaimer Nothing in this blog constitutes investment advice - or advice in any other field. Neither the information, commentary or any opinion contained in this blog constitutes a solicitation or offer by Equitable Investors Pty Ltd (Equitable Investors) or its affiliates to buy or sell any securities or other financial instruments. Nor shall any such security be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction. The content of this blog should not be relied upon in making investment decisions. Any decisions based on information contained on this blog are the sole responsibility of the visitor. In exchange for using this blog, the visitor agree to indemnify Equitable Investors and hold Equitable Investors, its officers, directors, employees, affiliates, agents, licensors and suppliers harmless against any and all claims, losses, liability, costs and expenses (including but not limited to legal fees) arising from your use of this blog, from your violation of these Terms or from any decisions that the visitor makes based on such information. This blog is for information purposes only and is not intended to be relied upon as a forecast, research or investment advice. The information on this blog does not constitute a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Although this material is based upon information that Equitable Investors considers reliable and endeavours to keep current, Equitable Investors does not assure that this material is accurate, current or complete, and it should not be relied upon as such. Any opinions expressed on this blog may change as subsequent conditions vary. Equitable Investors does not warrant, either expressly or implied, the accuracy or completeness of the information, text, graphics, links or other items contained on this blog and does not warrant that the functions contained in this blog will be uninterrupted or error-free, that defects will be corrected, or that the blog will be free of viruses or other harmful components. Equitable Investors expressly disclaims all liability for errors and omissions in the materials on this blog and for the use or interpretation by others of information contained on the blog |
22 Jan 2024 - New Funds on Fundmonitors.com
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New Funds on FundMonitors.com |
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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. |
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| Antares Ex-20 Australian Equities Fund | ||||||||||||||||||||||
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19 Jan 2024 - Trip Insights: The US
18 Jan 2024 - Australian Fixed Interest: Unveiling the road ahead in 2024
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Australian Fixed Interest: Unveiling the road ahead in 2024 Janus Henderson Investors December 2023 Bond markets have experienced a heightened level of volatility and recent drawdown having emerged from a period of exceptionally low yields. In the aftermath of the Global Financial Crisis (GFC) and the pandemic, policy makers tested zero and even negative yields in a bid to fight the low growth, low inflation environment with artificial and extraordinary central bank interventions. Today, in a bid to fight the exact opposite, policy has again driven yields to new post GFC highs. Market participants now readily accept, for a variety of reasons including the great energy transition, 'friend-shoring' and geopolitics, that inflation and therefore yields are likely to be higher on average over the decade ahead. However, what perhaps is missing in this view is that cycles can still co-exist amongst these structural trends. The next year is one where we believe the cycle will come to the fore. Macro themes in an uncertain futureThe macro environment as we enter 2024 looks to be uncertain and uncomfortable future, and one in which things are likely to come to a head. Our central case sees a slow deflation of the excess demand meeting limited supply difficulties, but there are a myriad of risks. We believe the Reserve Bank of Australia (RBA) will be on hold through most of 2024, with a modest easing cycle commencing late Q3 next year. GDP growth will remain below trend, and weakness will progress from households through to the investment side of the economy. Finally, we think inflation will moderate back towards, but not quite reaching, the RBA's 2-3% target. Strong population growth and housing dynamics risks further RBA tightening, but this is balanced against the pressures generated from the 4.25% tightening seen so far. Population growth should ease up to the pre-pandemic trend. We see the slowing economy leading to a slowly rising unemployment rate, which will move the economy back toward equilibrium. Downside risks come from slowing global growth, and China in particular. Geopolitical pressures are also being watched closely, as they have the potential to weigh on growth and push inflation higher. Locally, we watch for cracks in spending and the path of fiscal policy. Markets on the other hand have toyed with the 'higher for longer' and 'policy likely to grip' themes. Today the market has very little priced in terms of an easing cycle, with an average cash rate over the next half decade of 4 to 5% and even a little higher over the subsequent 5 years. This, in our assessment, is unlikely to be validated by the RBA over time. Meanwhile corporates are facing a more challenging environment after having enjoyed a couple of years of above-average profits buoyed by ultra cheap debt funding costs, an ability to pass through cost inflation and having benefited from strength in nominal revenues. In 2024, these very corporates are likely to face a constrained consumer, ongoing cost pressures and elevated refinancing costs. It will be a year of the haves and have nots in the corporate space; those with prudent balance sheet management in resilient industries separated from others exposed to consumer cyclical, interest rate sensitive industries. Investment grade companies for the most part remain well placed to weather an economic slowdown. Lower credit quality segments (and in particular leveraged companies, related to construction, housing, non-conforming asset backed securities and consumer finance) stand to be tested in the year ahead, at the very least with mark to market drawdowns but potentially with permanent loss of capital for investors. With the cycle maturing, our preference is to be concentrated in higher quality credit which remains the sweet spot for investors with equity like return prospects. We remain wary of the more complex, levered or subordinated credit segments, especially those lower in quality. In seeking opportunities, we remain patient as we seek meaningful future high yield, loan and emerging market debts. The road aheadLooking to 2024, the fixed interest asset class provides a compelling proposition as a genuine diversifier with attractive yields offering strong competition to a number of growth asset classes; a privileged position following years of the opposite. However, the latter stages of the economic cycle will likely deliver higher levels of volatility, creating opportunities for those investors who have to tools, skills and risk taking heritage to be able to take advantage of. In 2024, our 'north stars' remain that:
Author: Jay Sivapalan, Head of Australian Fixed Interest, Shan Kwee, Porfolio Manager and Emma Lawson, Fixed Interest Strategist - Macroeconomics |
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Funds operated by this manager: Janus Henderson Australian Fixed Interest Fund, Janus Henderson Australian Fixed Interest Fund - Institutional, Janus Henderson Cash Fund - Institutional, Janus Henderson Conservative Fixed Interest Fund, Janus Henderson Conservative Fixed Interest Fund - Institutional, Janus Henderson Diversified Credit Fund, Janus Henderson Global Equity Income Fund, Janus Henderson Global Multi-Strategy Fund, Janus Henderson Global Natural Resources Fund, Janus Henderson Tactical Income Fund This information is issued by Janus Henderson Investors (Australia) Institutional Funds Management Limited ABN 16 165 119 531, AFSL 444266 (Janus Henderson). The funds referred to within are issued by Janus Henderson Investors (Australia) Funds Management Limited ABN 43 164 177 244, AFSL 444268. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Past performance is not indicative of future performance. Prospective investors should not rely on this information and should make their own enquiries and evaluations they consider to be appropriate to determine the suitability of any investment (including regarding their investment objectives, financial situation, and particular needs) and should seek all necessary financial, legal, tax and investment advice. This information is not intended to be nor should it be construed as advice. This information is not a recommendation to sell or purchase any investment. This information does not purport to be a comprehensive statement or description of any markets or securities referred to within. Any references to individual securities do not constitute a securities recommendation. This information does not form part of any contract for the sale or purchase of any investment. Any investment application will be made solely on the basis of the information contained in the relevant fund's PDS (including all relevant covering documents), which may contain investment restrictions. This information is intended as a summary only and (if applicable) potential investors must read the relevant fund's PDS before investing available at www.janushenderson.com/australia. Target Market Determinations for funds issued by Janus Henderson Investors (Australia) Funds Management Limited are available here: www.janushenderson.com/TMD. Whilst Janus Henderson believe that the information is correct at the date of this document, no warranty or representation is given to this effect and no responsibility can be accepted by Janus Henderson to any end users for any action taken on the basis of this information. All opinions and estimates in this information are subject to change without notice and are the views of the author at the time of publication. Janus Henderson is not under any obligation to update this information to the extent that it is or becomes out of date or incorrect. |
17 Jan 2024 - Why self storage could be a good place to stash some cash
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Why self storage could be a good place to stash some cash Pendal December 2023 |
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Self storage is an under-appreciated part of the real estate industry that could be a big winner from Australia's growing population. Julia Forrest explains the investment opportunity. SELF-STORAGE is not the first place many investors would think of as a place to stash some cash. But Aussie equities investors looking for opportunities should take a closer look at the industry, says Pendal PM Julia Forrest. "The world of self-storage is not something you often hear about, but it's an asset class we like," says Forrest, who co-manages property investing in Pendal's Aussie equities team. Record high immigration and a downsizing trend towards apartment-living will fuel ongoing strength in the self storage industry, says Pendal's Julia Forrest. ASX-listed National Storage REIT (ASX: NSR) -- which operates 230 centres across Australia and New Zealand -- offers exposure to the sector. NSR is the biggest active position in Pendal's property strategy, Forrest says. The opportunity explainedHigh inflation and rising interest rates have seen a somewhat muted investor appetite for real estate over the past twelve months. Office assets are trading as much as 30 per cent below book value and the retail and logistics sectors are both under some pressure. But self-storage assets are defying that trend, underpinned by strong demographics, low maintenance costs and inbuilt inflation protection, says Forrest. "Occupancy was supercharged during COVID -- and is now returning to normal -- but the underlying metrics remain very strong, linked largely to Australia's strong population growth." Self-storage assets were in strong demand during the COVID lockdowns period as young people returned to the family home, expats were forced to return at short notice, and many households had to clear space for working from home. Now immigration and an ageing population are underpinning the industry's growth. Forrest says 70 per cent of self storage clients are individuals looking for somewhere to store their possessions, often prompted by a life event. The remaining 30 per cent are businesses needing somewhere to store their inventory, building materials, and tools. Low costs, strong pricesOne of self storage's key attractions is very low maintenance costs compared to other types of real estate. "It costs very little to maintain -- you're replacing lighting, there's a minor amount of depreciation. That means you get strong, resilient cash flows." As a result, valuations are holding up well as other real estate sectors come under pressure. Retail real estate faces structural headwinds from the move to online shopping and infinite supply of virtual alternatives to physical store space, says Forrest. Office is also facing structural change in the way people work and has risks ahead as the economy slows. "But self storage is not a discretionary purchase -- a lot of it is needs based because of those life events, which makes it a little more resilient than the other sectors. "Self storage is still transacting at book value. Office is 20 to 30 per cent below book value. Retail and even industrial are beginning to see a bit of pressure on book values, but self storage continues to transact at book values." Self-storage sites also have the potential for transformation into high value industrial and logistics space, she says. "Industrial vacancy is incredibly low. For self storage, one of the higher and better uses is as industrial. You don't get that with office because of zoning." Inflation protectionForrest says self storage offers a level of inflation protection in a portfolio because of the short duration of leases. "Because you're leasing month to month, if there is a big inflationary spike you can just lift your rate. You are not locked into a long-term lease. This provides quite a lot of inflationary resilience." She says the Australian market is quite immature relative to other markets. "Self storage space in Australia represents 2.1 square feet per capita. In the US, it's closer to 6.1 square feet per capita. So, in terms of available space, Australia is relatively under serviced, although the US is a much more mobile market." Real estate sentiment shiftsSentiment towards real estate has shifted markedly in the last few weeks after a tough year amid signs that inflation is coming under control, Forrest says. "Until very recently, people were very concerned about interest rates and inflation. "But with a couple of lower CPI readings here and in the US, the market's pricing of future rate hikes has come way back and that has led to a real estate rally." Author: Julia Forrest & Pete Davidson |
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Funds operated by this manager: Pendal Focus Australian Share Fund, Pendal Global Select Fund - Class R, Pendal Horizon Sustainable Australian Share Fund, Pendal MicroCap Opportunities Fund, Pendal Sustainable Australian Fixed Interest Fund - Class R, Regnan Global Equity Impact Solutions Fund - Class R, Regnan Credit Impact Trust Fund |
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This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 8, 2021. PFSL is the responsible entity and issuer of units in the Pendal Multi-Asset Target Return Fund (Fund) ARSN: 623 987 968. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient's personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com |
