NAV on 2019/06/13
|NAV on 2019/06/12
|52 week high on 2018/06/18
|52 week low on 2019/06/04
|Total Expense Ratio on 2018/09/30
|Total Expense Ratio (performance fee) on 2018/09/30
Prime Collective Investment Schemes
South African--Real Estate--General
FTSE/JSE J253T property index
Christo has more than 29 years experience in the financial industry including positions at the Reserve Bank, The Development Bank of Southern Africa, The University of Stellenbosch and Sanlam Asset Management. Christo serves on the board of 4i Group and 4i Asset Management.
Autus Prime Property comment - Mar 19
The Autus Investment Team customarily begins the year with a strategic investment workshop to consider the economic and investment factors likely to influence the markets in coming year. This year the mood was less sanguine because members identified several risks to keep an eye on in the coming months. These include the dire state of the government finances and its ever-increasing debt exacerbated by the perilous state of the SOE’s - especially Eskom, credit downgrade potential, the looming national election and a slowing global economy amongst others.
During the quarter the national budget, read by Finance Minister Tito Mboweni, confirmed government’s desperation to raise additional revenue, cut rising expenditure and reduce financial demands from poorly functioning SOE’s. Eskom’s crisis deepened and the intermittent load-shedding is retarding national productivity and economic growth. SA GDP grew by 0.8% in 2018 and is forecast to grow by 1.5% in 2019. Goldman Sachs recently predicted that the electricity crisis could subtract 0.3% from Q1 GDP growth. The RMB/BER Business Confidence Index slumped to a low of 28 index points in the first quarter of 2019. Seven out of ten business people polled expressed dissatisfaction with the current business environment. Particularly concerning is that the declining confidence cuts across all sectors of the economy including the building, retail and manufacturing sectors. The consumer remains constrained and with rising petrol costs, hikes in electricity tariffs and a weaker rand, inflation may begin to tick up. For February 2019, a consumer price inflation rate of 4.1% was recorded. This was comparatively benign mainly because food costs remained relatively constant. Inflation for 2019 is expected to remain within the 3-6% SARB target range. With a frail local economy, slowing global growth and moderate inflation the SARB is not expected to raise interest rates in 2019. At their March review, Moody’s left their rating unchanged. Internationally, global growth is beginning to slow. Interest rate hikes in the US are looking less likely this year as consumer spending weakens. Talks of a US recession are beginning to emerge. Interest rates in China were lowered during the quarter to support flagging growth there. The lack of consensus in the UK on an acceptable Brexit and the concomitant uncertainty is harming new investment and the prospect of growth in the UK. European economies are forecast to remain stable in 2019. The Brent crude oil price has risen by 27% to end the quarter at US$69.00. The global inflationary impact of these higher prices, if sustained, will be closely monitored. These factors combined with the ongoing trade negotiations between China and the US have fuelled investor jitters. We expect more of this jostling to occur in the markets until these major issues are resolved.
The FTSE/JSE SA Listed Property Index gained 9,71% in the first month of the new year, however these gains were given away as property share prices retraced to eventually cause the index to end the quarter up only 1,07%. The Autus Prime Property Fund recorded a return of 1,71% for the quarter under review. The Fund’s outperformance relative to the index can be attributed to a high cash exposure in the fund (the fund can keep 20% in cash) and stock selection of less volatile property shares.
During the quarter a research exercise to determine the sector allocation (retail, commercial and industrial) of most property shares were done. This included research on the location of each individual property as well as the offshore exposure of all property shares. We are also concerned about the effect of online shopping on retail malls and the effect of business confidence on the future income streams thereof. We also investigated opportunities in storage fac ilities and the counters offered such exposure, both in South Africa and offshore. The uncertainty regarding Brexit made us very cautious about British property. We restructured the portfolio according to the findings of our investigation which resulted in a portfolio with only 14 counters. The following shares were sold out: Hyprop, Intu, Arrowhead, RDI, Dipula and Delta. No new counters were added to the fund and the top 5 holding include Redefine, Growthpoint, Sirius, Attacq and Vukile. Given the steady stream of annuity income and low bad debt levels we upped the exposure to Stor-Age Properties.
The investment universe of the portfolio includes property securities, property collective investment schemes, property loan stock companies, Real Estate Investment Trusts (REITs), money market instruments and qualifying fixed interest investments. The manager may invest in unlisted investments from time to time, as well as in participatory interests in other collective investment schemes which are consistent with the portfolio's investment policy. The portfolio's property exposure must at all times exceed 80% of its net asset value. The portfolio may also invest in offshore property up to 25% of its net asset value.