Market fears see investors miss performing funds

Despite outperforming other asset classes, the post-GFC hangover has meant investors are reluctant to return to A-REITs. 

According to the latest Australian Listed Property Securities Sector Review, published by Lonsec Research, while the asset class has returned an average return of 11.4 per cent, it has been largely ignored by investors.

“You might normally expect that when an asset class performs as strongly as the A-REIT sector has done over the past few years, retail investors would sit up and take notice,” Lonsec Research senior analyst Nick Thomas said.

“Looking at A-REITs within our active peer group, half of them experienced negative net fund flows in the year to December 2015.”

A-REITs clearly outperformed other assets over the same period when compared to the 4.5 per cent returned from global bonds and the 3.8 per cent from global listed infrastructure, the report said. 

Meanwhile, equities posted negative returns over the same period, -3.3 per cent globally and -9.3 per cent domestically.

Post-GFC fear may be the reason why A-REITs have been forgotten, Mr Thomas said.

“The GFC may be in the past, but a lot of investors haven’t forgotten the pain of capital losses from a sector they expected to be more defensive,” he said.

“On one level, you can understand why investors may still be cautious, but on the other hand they may have missed structural improvements within the sector since this time. In the past few years, A-REITs have proved to be a solid asset class that has been a beneficiary of the low interest rate environment, even through the general market volatility of 2015-16.”

However, according to Lonsec Research’s analysis, with the sector accumulating strongly since 2014, these excess returns have become more difficult to find.

“With the bull market continuing into 2016, valuations in the sector have started to look stretched and it has become more difficult for active managers to find value. But when market conditions change, that’s when an active strategy should begin adding value once again,” Mr Thomas said.

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