Portfolio Partners has eschewed the investment approach common among listed property trust managers and is being rewarded with strong returns in this asset class.
Portfolio Partners has eschewed the investment approach common among listed property trust managers and is being rewarded with strong returns in this asset class.
"Early last year, we came to the conclusion that there was little to be gained from analysing property trusts at the sub-sector level," said Andrew Smith, manager of the Portfolio Partners Listed Property Trust since January 2001.
"Relative sector yields - of Industrial, Office, Retail and Diversified Trusts - remain surprisingly constant over time. Consequently, focusing on the relative performance of sectors, and being actively overweight one sector relative to another, is largely a waste of resources and diverts attention from the main game - selecting individual stocks."
As a result, unlike most listed property trust managers Portfolio Partners focused almost entirely on stock selection, rather than sectoral selection, as this is where it believed the big gains were to be found.
"Relative returns at the individual stock level vary enormously," Smith said. "For example, over the 12 months to 30 April 2002, the Westfield America Trust returned 39.1% compared with a negative return of 28.4% for the Grand Hotel Group1. This highlights that opportunities to add value are overwhelmingly at the stock rather than sector level."
"The results speak for themselves," Smith added. "A listed property fund that focuses on stocks, as opposed to sub-sectors, can significantly outperform the market. We've developed a simple and replicable process for investing in listed property trusts, and have been able to consistently outperform our benchmark. Our Listed Property Trust has outperformed its benchmark in nine out of 10 months for the financial year to date."
The Portfolio Partners Listed Property Trust has returned 21.6%2 over the 12 months to 30 April 2002, outperforming the benchmark S&P/ASX 200 Property Accumulation Index by 3.5%.
"This is an exceptional achievement given the relatively low risk of the fund - its tracking error over the period averaged just 1.2, giving an 'information ratio' of 2.83 ", said Managing Director of Portfolio Partners Craig Bingham.
In the latest Mercer performance survey, the Portfolio Partners Listed Property Trust was ranked in the top quartile of listed property funds for the year to 31 March 2002.
1 Source: IRESS
2 Based upon gross return, exit to exit price assuming reinvestment of income. For the period to 30 April 2002. Past performance is no guarantee of future performance.
3 'Tracking error' is a measure of risk relative to the benchmark. An 'information ratio' measures this risk relative to the performance of the fund. An information ratio of 2.8 is generally considered high, which means that the return is high for the amount of risk involved.
"Clearly, the myth that listed property trusts are boring investments that offer low returns is just that, said Smith. "The truth is that over the past decade, the sector has delivered returns very similar to the broader sharemarket but with only around two-thirds of the risk." The other big attraction was the sector's relatively high yield - around 9% p.a. over the past four years - in a low-yield investment environment.
According to Smith, the focus of Portfolio Partners' investment process for listed property securities - which evolved early last year after he took over management of the listed property portfolios - is purely on identifying listed property trusts that have been mispriced by the market. Employing a mix of proprietary quantitative models and qualitative analysis, the Listed Property Trust invests in trusts that have a bias to:
- above-market yield;
- above-market distribution growth;
- superior management quality/deal-making ability; and
- potential to 'surprise' at an earnings-per-unit level.
Andrew Smith is available for comment on (03) 9220 0392 or 0407 808 146.
For further information, please contact:
Simon Morgan
Group General Manager Public Affairs
(03) 9829 8892
0407 966 632
Note to editors:
- Norwich Union Australia is a group of three specialist financial services companies: Navigator, Norwich Union Life and Portfolio Partners. Through these companies, we provide products and services in the areas of wealth creation, wealth management and wealth protection for more than 300,000 customers throughout Australia.
- Globally, Norwich Union Australia is part of CGNU plc, the world's seventh largest insurance group, the largest insurer in the UK and one of the top five life companies in Europe. CGNU was formed in May 2000 through the global merger of CGU plc and Norwich Union plc.
- CGNU's principal business activities are long-term savings, funds management and general insurance. It has a market capitalisation of approximately A$50.2 billion at 07/02/02, worldwide premium and investment sales of more than A$70 billion from ongoing business, and more than A$556 billion in assets under management. The group has 62,000 employees and more than 15 million customers.
- Norwich Union Australia has a sister company, CGU Insurance Ltd, a Top 5 general insurance business, which operates independently in Australia.
Except where required by law, investment into the Portfolio Partners investment trusts will only be made upon receipt of a completed application form from a current prospectus, which has been lodged with ASIC, a copy of which can be obtained from Portfolio Partners. Management fees and entry fees, where applicable, will apply. Portfolio Partners does not guarantee future performance.