Aussie investors overweight in domestic equities are essentially invested in the housing sector alone, a portfolio manager has said, calling for investors to consider global listed real estate.
Speaking to Nest Egg, Quay Global Investors principal and portfolio manager Justin Blaess said Australian investors are generally too overweight in Australian equities because “we’ve had it so good for so long”.
Expressing hope that portfolios overweight in domestic equities don’t experience a property fall, he said investors should be aware that by focusing on Australian equities, they’re increasing exposure to the one risk.
He explained: “It's all the same risk essentially, because the banks in simple terms are writing options on the housing market.
“Say, you've got your house, you’ve got an investment property, you probably own portfolio bank shares.
“If we have a big shock to the real estate market, it's all the same. It's all the same thing. [However] if you've got global shares in your portfolio, chances are the Aussie dollar will be weaker, which means your portfolio of global shares would go up in value.”
Quay Global analyst Ninus Kanna reaffirmed Mr Blaess’ view, noting that a high level of inter-correlation within the Australian market means investors, even if they are invested in a variety of bank stocks, shares and financial services shares are all effectively investing in the Australian residential sector.
“It's all tied up in the same thing,” Mr Kanna said.
Mr Blaess said investors should look to the US global real estate sector for listed real estate opportunities, thanks to its demographic shifts and market movements.
“Because Australia's relatively small, we can really only gain access to the main assets: retail, industrial, office. When you go around the world, you've got stuff like student accommodation, and multi-family [to rent] apartments.”
He said Australia and the US are at opposite ends of the property cycle, with Australia at the top and the US coming off the bottom.
Additionally, the US is experiencing a low-level of supply and a subsequent increase in renters.
With this in mind, he said investing in property stocks in areas of strong wage and salary growth isn’t a bad idea.
This is great, but how do I actually do it?
Mr Blaess said investors can buy direct through international share trading, although noted investors would be required to carry out their own analysis.
The alternative is to invest through funds like Quay Global, he admitted.
He suggested investors considering a fund to look at their “track records, track records, track records”.
“When we set up this business the whole thesis behind it was a lot of the global real estate offerings in the market weren't delivering.”
Continuing, he said the first question fund managers should be asking themselves is: “Is what I am going to buy today going to preserve capital and provide an acceptable return in the future? Not whether it will beat an index or not."
“To give you an example, a lot of our highly index-aware peers will probably own 70 to 90 stocks. We have 25.
“We don't care what the other, in the case of an index manager, what the other 250 stocks in the index are doing. We don't care. All we care about is the 25 we own, are not going to blow up on us.”
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