SA fund managers focus on offshore property markets

Some fund managers are allocating new money to offshore focused listed property investments only this year because they expect the potential returns of local vehicles to disappoint.

OME fund managers are allocating new money to offshorefocused listed property investments only this year because they expect the potential returns of local vehicles to disappoint.

With domestic real estate’s total return tipped to barely beat inflation this year, fund managers are investing in real estate firms on offshore exchanges or buying into South African-listed firms that own properties abroad or have a dual listing.

Stanlib’s head of listed property funds, Keillen Ndlovu, said yesterday that he had been mostly attracted to US and UK property markets over the past few months.

“Offshore property valuations look more attractive on both a net asset value and yield basis,” he said.

US listed property yields were 4.5% in dollar terms which were higher than the respective bond markets, with that country’s 10-year bond yield at 1.8%. Stocks were trading at 5%-10% discount to net asset value on average. This was while SA listed property yields were averaging 8% and lower than the 10-year bond yield of 9.2%.

“It’s the client who decides whether they prefer to invest in our local Stanlib Property Income Fund or our offshore property fund, the Stanlib Global Property Fund. Our message is that we prefer offshore property to local property and it makes sense for investors to diversify, that is, have not only local property, but to consider offshore property as well,” he said.

South African economic and political risks were worrying, said Maurice Shapiro, head of Ma’alot Investments.

“The World Bank in February revised its economic growth forecasts for SA from 1.4% this year to 0.8% and its 2017’s forecasts from 1.6% to 1.1%, so economic growth expectations for SA are weak. I am also concerned about sudden government policy changes,” he said.

But some fund managers say local funds do offer value.

“We see compelling value in the South African-listed property stocks that are trading at wide discounts to net asset value and on extremely attractive initial yields. We understand that the risks have increased, but we feel those risks are fully captured in current prices. We see mounting risks for global real estate businesses, as global growth slows and currency wars intensify,” said Grindrod Asset Management’s Ian Anderson.