Zurich: AREIT investors must buy the best properties on the street, not the whole street

Zurich Financial Services Australia (Zurich) contests recent commentary on the merits of active management in the increasingly buoyant Australian Real Estate Investment Trusts (AREITs) market, instead believing that the uneven performances seen within individual sectors of the economy add a level of risk to a passive approach.

Mr. Patrick Noble, Senior Investment Strategist within Zurich’s Life and Investments business likens the passive approach to buying a whole street.

“In simple residential property terms, why buy the whole street when really what you want is to selectively choose a property in the right location, priced at a discount to your expert market valuation, and which can be moved in and out of quickly?” he said.

“We have a positive outlook for the AREIT market but the opportunities are not uniform in our view.

“For example, we have a preference for REITs with an exposure to residential but are more cautious for securities with exposure to the office market. Residential is benefitting from both recovering markets and improving margins whereas office to us is struggling under high vacancy rates and new construction which is adding to supply.

“Under researched and under owned small cap property securities are also offering some good opportunities,” he added.

The sector has demonstrated strong returns over the past 5 years and yields also remain appealing for investors.

“But simply taking a passive position belies our strong conviction that there will be a wide dispersion of future returns in the listed property sector. Investors should consider the argument for highly active, nimble management alongside the appeal of the AREIT market,” said Mr. Noble.

One fund utilising such an approach is Zurich’s Australian Property Securities Fund, recently commended by Morningstar Australia in recognition of its “track record for serving unit holders well.”*

Mr. Noble said the fund was highly regarded by other independent research houses including Lonsec and Zenith and has recently been included in the model portfolio for a major listed institution’s private wealth investment lineup.

“The strong message for investors is to seek out active managers with a proven track record as the market requires specialist skills now more than ever,” he said.

Fund wins model portfolio listing

The Zurich Australian Property Securities Fund has recently won a position on the model portfolios offered to clients of Perpetual Limited-owned licensee Perpetual Private Wealth.

Mr Philip Kewin, General Manager Retail for Zurich’s Life and Investments business said it was pleasing to see further uptake of the Zurich Investments’ model to develop strategic partnerships with best-of-breed investment specialists.

“Renaissance has been a strong partner to Zurich and our customers since 2005. As we forge new business partnerships with a strategic, long-term focus in mind it is very encouraging to see investors and their advisers rewarded by the diligence we bring to our manager line-up,” he said.

Mr Kewin said listed property investment was the traditional domain of investors seeking reliable income and some capital growth over the long term.

“Australian investors can access a Fund that has convincingly reminded us that a disciplined, rigorous investment approach together with highly active market capability can help to achieve such outcomes”.