Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Time to buy into the Australian property sector?
As Coronavirus cases drop, and talk of CSL’s contracts to manufacture vaccines (that is, AstraZeneca’s and/or the University of Queensland’s candidate, if they are successful) starts doing the rounds, hopefully it shouldn’t be too much longer before second-wave lockdown restrictions ease and the economy is back on track. That is the plan, notwithstanding any unforeseen outbreak.
It pays, then, to look at some of the unloved sectors that fell victim to the pandemic. One such sector was property. Both residential and commercial property markets were sold off during the pandemic. The S&P/ASX 200 Real Estate Index (XRE) comprises stocks included in the S&P/ASX 200 that are classified as members of the GICS Real Estate sector. The Coronavirus collapse saw the real estate index drop by 42% from top to bottom. Here are the individual stocks in the index:
| Company | ASX | Coronafall % Feb-20-March23 |
| Stockland Group | SGP | -67% |
| Charter Hall Group | CHC | -62% |
| Scentre Group | SCG | -60% |
| Vicinity Centres | VCX | -59% |
| Unibail-Rodamco-Westfield | URW | -53% |
| GPT Group | GPT | -52% |
| Abacus Property Group | ABP | -51% |
| Mirvac Group | MGR | -49% |
| Lend Lease | LLC | -49% |
| Growthpoint Properties | GOZ | -44% |
| Cromwell Property Group | CMW | -42% |
| Dexus Property Group | DXS | -39% |
| SCA Property Group | SCP | -34% |
| Waypoint REIT Ltd | WPR | -28% |
A-REITs are usually classified into three sectors: retail; office; and industrial. As you can see above, real estate in the retail space was hit hard: with everyone in lockdown, foot traffic in stores was reduced to nothing. Stockland Group (ASX:SGP) was hit the hardest, falling about 67%, followed by Charter Hall Group (ASX:CHC), which was down by 62%. Vicinity Centres (half-wner of Melbourne’s Chadstone shopping centre) downgraded its earnings forecast by 2.2 %, as shopping centres were reduced to ghost towns with no foot traffic. Retail property stocks were once a great place for defensive investors to park their cash, because people always need to eat, drink coffee and socialise. But as we saw, a lot of these norms changed. One of the biggest risks that retail property groups face is vacancies and business bankruptcies. The retail property sector was at the epicentre of this risk but with a vaccine (hopefully) around the corner and most of Australia out of lockdown, have we passed the turning point? Some of the above A-REITs are ‘oversold’ and it can be an opportune time to buy.
With that in mind, we think the BetaShares Legg Mason Real Income Fund (RINC) or the Vanguard Australian Property Securities Index ETF (VAP) are both suitable ETFs that give investors exposure to A-REITs.
The BetaShares Legg Mason RINC ETF invests in an actively managed portfolio of listed Australian real assets, such as A-REITs, utilities and infrastructure securities. Its target is to generate an after-tax income yield higher than that produced by the S&P/ASX 200 Index, and to increase that income above the rate of inflation.
| Sector Allocation | % |
| Diversified REITs | 31.5% |
| Retail REITs | 23.8% |
| Multi utilities | 20.0% |
| Gas & electricity grids | 7.9% |
| Airports, ports & rail | 6.7% |
| Office REITs | 5.0% |
| Industrial REITs | 4.1% |
| Toll roads | 0.9% |
The ETF fell by 40% during the Coronavirus collapse and has recovered by almost 16% so far. It still has a way to go before it is trading at pre-Corona levels. For that reason, we think the ETF gives investors exposure to a sustainable income flow that is expected to rise with inflation from a portfolio of property companies that are expected to recover over the next year.
| Portfolio Holdings |
| Name (in alphabetical order) |
| AGL ENERGY LTD |
| APA GROUP |
| AURIZON HOLDINGS LTD |
| AUSNET SERVICES |
| CHARTER HALL LONG WALE REIT |
| CHARTER HALL RETAIL REIT |
| DEXUS |
| SCENTRE GROUP |
| SHOPPING CENTRES AUSTRALASIA |
| STOCKLAND |
Betashares says “due to their strong market positions, and the growing demand driven by population growth, real-asset companies often have the ability to raise prices, in some cases above inflation, irrespective of the business cycle. In other words, real assets generally have the ability to protect future income from inflation. This makes them relatively defensive investments.”
The Vanguard Australian Property Securities Index ETF seeks to track the return of the S&P/ASX 300 A-REIT Index, before taking into account fees, expenses and tax. The ETF provides a low-cost way to invest in ASX-listed property securities. This ETF invests in retail, office, industrial and diversified REITs.
| Top 10 holdings |
| 1. Goodman Group |
| 2. Scentre Group |
| 3. Dexus |
| 4. Mirvac Group |
| 5. Stockland |
| 6. GPT Group |
| 7. Vicinity Centres |
| 8. Charter Hall Group |
| 9. Shopping Centres Australasia Property Group |
| 10. Charter Hall Long Wale REIT |
As you can see, both the Vanguard and Betashares Legg Mason ETFs have very similar holdings and both give similar exposures.
There are concerns that shopping centres will not return to their former glory, due to the digital e-commerce revolution that exploded during lockdown. We think this theory is a little overdone. Australians flocked to shopping centres across the country earlier in the year, as coronavirus restrictions began to ease during the first wave. Once lockdown restrictions are eased, shoppers will return to their local shopping centres and share prices will start to reflect higher earnings. We think RINC is in the perfect position to capture this uplift.
