NAV on 2019/11/18
|NAV on 2019/11/15
|52 week high on 2018/11/19
|52 week low on 2019/09/02
|Total Expense Ratio on 2019/06/30
|Total Expense Ratio (performance fee) on 2019/06/30
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 Fund Managers
Autus Prime Property comment - Sep 19
It is increasingly difficult to find “green shoots” of hope when surveying the current South African economic landscape. The economy rebounded by 3.1% in 2Q2019 after the -3.1% recorded in 1Q2019. The mining and finance sectors contributed positively while manufacturing and trade detracted from economic growth in the quarter. For 2019 GDP growth of 0.6% is projected. Recent inflation updates and expectations show that inflation is at or near the midpoint of the 3%-6% target range despite fuel prices having risen 14.5% year-to-date and administered prices being hiked. Headline inflation of 4.2% is forecast for 2019. At their July meeting, the SARB elected to lower the bank rate by 0.25% to 6.5% while the prime rate was lowered to 10%. Effectively, the SARB returned to the SA consumer what it took away in November 2018. Business confidence (SA Chamber of Commerce and Industry Index) continued to drop in August to levels not seen in 34 years. The NHI Bill was released, setting out the architecture for an NHI fund. This has raised questions over the future of private healthcare and the cost and funding implications on government revenue. Prevailing policy uncertainty, the Eskom debt burden, an increasing budget deficit, and worsening debt-to-GDP ratio make a Moody’s rating downgrade ever more likely in the foreseeable future.
Credit must be given to Finance Minister Mboweni for publishing a paper offering a detailed examination of the structural reforms needed to reverse the downward trend in South Africa’s growth potential and competitiveness. Sadly, it was met with much resistance from alliance partners and some members in the ruling party. We hope that consensus could be reached sooner rather than later by all major role-players on implementing much needed economic and job growth initiatives as a matter of urgency.
Internationally, two interest rate cuts of 25 basis points each were announced by the United States Federal Reserve. Further import tariffs on Chinese goods were extended by the Trump administration until after the end-of-year festive season as trade negotiations between the world’s two largest economies continue with no clear solution in sight. The United States Treasury bond yield curve inverted at the two-year and ten-year maturities which caused some investors to speculate that a recession could be looming. The last time the yield curve inverted at these maturities was in 2007. In July, Boris Johnson was elected as the new Prime Minister of the United Kingdom. Johnson promised to deliver on the withdrawal of the United Kingdom from the European Union even if it comes at the cost of having no trade agreement (a so-called Hard Brexit). Early indications are that Johnson will struggle to win the necessary parliamentary support to deliver on his promise (as was the case with his predecessor).
The FTSE/JSE SA Listed Property Index ended the second quarter down 4.4% after recording an increase in the second quarter of 4.5%, which indicates that all the gains of the second quarter were wiped out in the third quarter. The Autus Prime Property Fund declined by 1,93% for the quarter under review after increasing by 1.4% from the second quarter. The Fund’s performance 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 which resulted in curtailing downside risk associated with the sector currently. Building on the research conducted in the third quarter, it became apparent that very little recovery is expected in the listed sector for the remainder of 2019 and even possibly in 2020. Tenant power, low escalations and increasing vacancy does not bode well for yields with office space bearing the brunt. Low economic growth is unlikely to see any sustained upward trend in the listed property sector.
Trading conditions remain difficult for the large funds and we believe some additional diversification is required to maintain momentum and access opportunities. We have adopted a more offshore focus this quarter and have upped our holdings in counters such as Sirius Real Estate and Nepi Rockcastle with the prevalence of a more stable economic environment and greater levels of stability in Europe despite indications of a slowdown in the Eurozone economy. The 17 counters that formed part of the portfolio at the end of the second quarter were reduced with holdings in SA Corp Real Estate and Hammerson being disposed of. Our belief in the logistics space has also resulted in us slightly increasing holdings in counters that have a logistics focus. The contribution of the top counters to the portfolio Growthpoint Properties Ltd and Sirius Real Estate Ltd were increased but Redefine Properties Ltd was adjusted down. Retail focused property counters are still immersed in stagnation with low economic growth and bad debt levels that do not bode well for property counters in this space.
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.