Advisers who use the Navigator platform have been provided with its annual performance review of Australian property funds, revealing an industry which is operating efficiently in a changing environment.
Advisers who use the Navigator platform have been provided with its annual performance review of Australian property funds, revealing an industry which is operating efficiently in a changing environment.
Mr Stuart Fechner, Navigator research manager, said the overall result saw a high proportion of the 56 funds reviewed receiving a rating of three stars or higher and therefore being what we considered investment grade.
"This is an impressive result for the industry, given the amount of change all players have had to cope with in recent times," he said. Characteristics of the industry over the last three years have included:
- Significant growth in the size of the listed property trust sector resulting from high levels of capital raising;
- Gearing levels increasing from low levels;
- Overseas assets increasing as a proportion of trust assets;
- Industry consolidation as a result of takeovers; and
- Increasing levels of development activity and the rise of internally managed trusts.
"As part of our review process, we assessed how each fund manager’s investment team and their processes are coping with these changes. This included evaluating methods for pricing various risks including gearing, currency exposure and development activity, trust liability modelling and US research capabilities," Mr Fechner said.
"We believe that the relatively low number of listed property trusts, and the fact that their share prices are increasingly moving in the same direction, has generally reduced the tracking error of funds and their expected level of outperformance. Further contributing to this is the relative efficiency within the listed property trust sector and that the fund size of many funds has increased strongly over the past couple of years," he said.
"This expected lower outperformance may no longer warrant the level of fees charged by some of the larger active managers," Mr Fechner added.
Two fund managers were awarded the highest rating of five stars: Vanguard and UBS. "This is interesting given that Vanguard is an index manager and UBS is one of the more active, higher tracking error managers. They therefore represent each end of the active / passive spectrum," Mr Fechner said. "Both managers were assessed as being very strong across the entire spectrum of our assessment criteria."
Mr Fechner said that other managers worthy of an honourable mention include Perpetual James Fielding and ING. "Perpetual James Fielding is the ‘new kid on the block’ and achieved an impressive rating of four stars. ING was significantly re-rated higher to four stars," he said.
At the other end of the ratings the BT / Sagitta funds were released from "On Hold". "We are comfortable with the new investment process and team employed by the manager and have accordingly rated the BT funds three stars," he said.
Mr Fechner said the review also incorporated the rating of three diversified property funds. "This is an interesting segment of the property market that allows exposure to both listed and direct property, providing extra diversification and the opportunity to move a portion of the portfolio away from the listed benchmark. Of the three managers reviewed within this segment, HSBC and Merrill Lynch received investment grade ratings," he said.
Mr Fechner said the primary objective of the review was to identify and monitor quality managers and funds and by doing so provide an additional service to advisers. "As part of this service, Navigator Research reviews each asset class on an annual basis and produces individual managed fund ratings based on the characteristics, performance and risk of those funds," Mr Fechner said. "Ratings are formulated by visiting fund managers, quantitative assessment of performance data and a peer review process."
"Ratings should not be viewed in isolation but in conjunction with the more detailed reports that are available to advisers when they are assessing and selecting funds for a client’s portfolio. The full research details are available to advisers who use Navigator, enabling them to better assess the potential of specific property investments for their clients," he said.
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Rating methodology
Navigator Research reviews each asset class on an annual basis and produces individual managed fund ratings based on the characteristics, performance and risk of those funds. Ratings are formulated under a rigorous program of comprehensive fund manager visits, quantitative assessment of performance data and an extensive peer review process. Assessment of managers / funds includes both qualitative and quantitative factors.
The sector review is conducted annually and the ratings are updated monthly. Each month the additional performance is incorporated into the quantitative calculations and any significant changes to the investment team or process are reflected in the qualitative factors.
Rating definitions
The final ratings are based on a five star system, with any fund rated three stars or higher considered to be "investment grade". The definition of each rating is as follows:
| ***** | A superior quality fund indicating a very strong fund manager, investment process and performance history. |
| **** | A very good quality fund indicating a strong fund manager, investment process and performance history. |
| *** | A good quality fund indicating a capable fund manager, investment process and/or performance history. |
| ** | A poor quality fund indicating a weak fund manager, investment process and/or performance history. |
| * | A very poor quality fund indicating a very weak fund manager, investment process and/or performance history. |
| Hold | The fund is under review and new investments should not be made into the fund until a new rating is issued. |
| Not Rated | The fund is monitored by Navigator Research but has not been assigned a star rating, generally due to an insufficient performance history or it being a multi-manager fund. |
For further information, please contact:
Simon Morgan, Group General Manager Public Affairs
Tel (03) 9829 8892 / 0407 966 632
Notes to editors:
- Aviva Australia is a group of two specialist financial services companies: Navigator and Norwich Union Life Australia Ltd. Portfolio Partners, the Australian funds management arm of Aviva plc, is a sister company. 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, Aviva Australia is part of Aviva plc, the world’s seventh largest insurance group, the largest insurer in the UK and one of the top five life companies in Europe. Aviva was formed in May 2000 through the global merger of CGU plc and Norwich Union plc.
- Aviva is the world’s seventh-largest insurance group and the biggest in the UK. It is a leading provider of life and pensions products to Europe and has substantial businesses elsewhere around the world. Its main activities are long-term savings, fund management and general insurance. It has premium income and investment sales from continuing operations of A$68.32 billion, and more than A$488 billion of assets under management (as at 1 July 2003). The group has more than 59,000 employees and 25 million customers worldwide.
- The information in this document reflects Navigator Australia Limited's ('Navigator’) understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information is not, nor is it intended to be, comprehensive or a substitute for professional advice on specific circumstances. The securities advice or information given in this document is of a general nature and has not taken into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision on the basis of the advice above, a prospective investor needs to consider, with or without the assistance of a professional adviser whether the advice is appropriate in the light of their particular investment needs, objectives and financial circumstances.
- Applications to invest in a financial product issued by Navigator or any of its related entities must be made by completing the application form attached to the applicable Product Disclosure Statement ("PDS"). A PDS is available from Navigator or your financial adviser. Investors should consider the PDS before making an investment decision or deciding to continue to hold a product.
- Disclaimer: The information provided for under "Rating methodology" and "Rating definitions" in this document reflects Navigator Australia Limited's ('Navigator’) understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information is not, nor is it intended to be, comprehensive or a substitute for professional advice on specific circumstances. The securities advice or information given in this document is of a general nature and has not taken into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision on the basis of the advice above, a prospective investor needs to consider, with or without the assistance of a professional adviser whether the advice is appropriate in the light of their particular investment needs, objectives and financial circumstances.