Despite the debate over open-ended funds perhaps being unsuitable for property investments, South Africa’s Nedgroup has added two share classes to its Global Property fund. The fund is managed by Resolution Capital, with Andrew Parsons overseeing the management. Nedgroup uses a variety of best-in-class firms to run its funds in a multi manager style.
“People like property and the primary reason they like it is because of consistency and the rental income. And also, you've got a tangible asset at the end of it, they're supporting that rental income so it's not like you're investing in a trademark or brand or a service that could go out of favour,” Rob Johnson, head of Investments at Nedgroup, told fundeye.
The fund essentially holds a variety of REITs, giving it the liquidity investors need for daily trading, especially retail investors. One of the fund’s top holdings Vonovia, which has a 5.6 percent portfolio weighting, has recently issued debt which is costing the company just 60 basis points a year due to rock bottom interest rates. Given this is one of the largest residential property companies in Europe, suggests it is well positioned to grow its own portfolio.
At a fund level, the cash position is 4.8 percent which Mr Johnson admits is high for Resolution but debt and capital raising is high among the fund’s top holdings, Vonovia’s debt only reaches 1 percent for a ten year note and the companies can use the proceeds to buy buildings that will generate a yield of at least 4 percent.
With property investments, a lot is made of the various sectors and which have been negatively impacted by COVID and which ones have benefitted. “Their [Resolution] view was retail was under pressure so they were underweight there, and office space was frothy, they weren't seeing the attractive valuations there so the firm was buying into things like data centres, logistics and residential.”
Mr Johnson said it was not necessarily true that property markets are a good way to be invested in an asset class that doesn’t follow equity markets and in the case of this fund this is probably true. As the holdings are REITs which trade just like equities they will move with the market to a certain extent and within certain REITs there may be highly illiquid assets which as you go down the market cap becomes more of an issue.
In terms of who the winners and losers will be after a COVID stricken market recovery, Mr Johnson said that Resolution are picking areas which provide as much visibility regarding rental income as possible. He gave the example of Alexandria Real Estate, which is involved in life sciences adding that you can’t do life sciences ‘at home’ and its quite a task to take a lab and rebuild it in another location. The capital expenditure would probably put off tenants in this field from moving location.
Mr Johnson said that there is interest in this fund from wealth managers while Resolution itself is seeing a big uptick in enquiries from institutional investors. Its top holding Prologis is REIT in the industrial sector and partners with some of the biggest winners from COVID such as Amazon while the rest of the top five holdings are a mix of datacentres and residential REITs. While many have put forward their solutions to the illiquidity problem facing open-ended funds in the property sector, Mr Johnson thought it would take five days to sell the complete portfolio in the fund. A lot better than the six months currently being considered as the minimum holding period by the FCA.
