The relevance of listed property

Even the JSE’s top performing category could not quite match the total returns of listed property.

Listed property’s first-half performance is a timely reminder of the enduring relevance of this asset class in a diversified investment portfolio.

Total returns until early July were approximately 21%. This was significantly up on the second-placed category, the All Bond Index with its 8.3% return and the All Share Index return of 6.1%.

Even the JSE’s top performing category – financials – could not quite match the total returns of listed property. This is not an isolated performance. Listed property has consistently achieved solid returns in recent years.

The category’s investment case is similar to that for the stock market as a whole. Most people don’t have the energy, capital and entrepreneurial skills to open their own business, but they do have enough money to buy into a business through the stock market.

Similarly with listed property; many of us see the value of property investment, but don’t have tens of millions to buy an office block. But we can buy part of one through a listed property unit trust.

The listed property investor also sees the benefit of exposure to a class that delivers a regular income stream along with the prospect, down the years, of capital growth. Rental streams drive distributions while the shares of good property companies tend to rise over time.

Those with no immediate need to access quarterly distributions can leave the money within the unit trust to buy more units – the strategy of thousands of listed property investors who look for long-term gains over market cycles.

Since listed property has been treated as a distinct asset class, compound annual returns over one, three, five and nine years have consistently generated superior returns relative to other asset classes.

Proven performance like this leads to some head scratching when investors see that property funds are usually categorised as ‘medium risk’. However, the risk of short-term capital loss should be acknowledged.

In 2006, interest rates rose 50 basis points and listed property lost 25% of its value – an unprecedented value opportunity as it turned out. But those who sold near that very temporary bottom were no doubt chastened by the loss.

Volatility spotlights the relationship between category performance and interest rates. Generally, the prospect of a rate rise is negative for listed property while low rates, with the chance of a further dip, tend to be positive.

Of course, no one can predict interest rates with any certainty; though immediate prospects appear to favour a continuation of low rates as inflationary pressure seems to be easing, reducing the need for any sudden rate rise. You never know for sure, but the investor who plans to stay in the market across market cycles knows one thing … listed property doesn’t let you down if you stick with it.

* Mariette Warner, Fund Manager - Absa Propery Equity Fund, Absa Asset Management

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