Best Australian Listed Property Funds

Listed property has hit a rough patch, but a sustainable cash flow will help it deliver good returns over the longer term

Listed property funds provide investors with exposure to a professionally managed portfolio of publicly listed real estate investments. And rather than own the assets directly, investors buy into funds that manage the portfolio on their behalf.

This asset class is having a hard time of it due to the coronavirus pandemic. But listed property is typically held for the long term, and over this timeframe it has performed well.

The Pendal Property Securities Fund, this year’s winner, has returned 4.96%pa and 6.39%pa over three and five years respectively. It has a minimum investment of $25,000, a management fee of 0.65% and invests in property trusts, developers and infrastructure.

The one-year return of -16.56% is a function of the unique shutdown imposed to respond to the virus.

“Previous property market downturns have resulted from an oversupply of space, a sudden collapse in demand or challenges around access to credit, or the pricing of it,” says Pendal portfolio manager Julia Forrest. “But this was the result of an immediate government-mandated shutdown of the global and local economy. It challenged the conventional idea of what is prime property.”

The fund remains committed to riding out these turbulent times by sticking to its mission.

“Our fund went into 2020 positioned for soft economic conditions, so our focus was on quality covenants, long leases and resilient cash flows.

Our number one focus continues to be investing in real estate with sustainable cash flows,” says Forrest.

Second place in this category goes to the UBS Property Securities Fund, which returned 6.43%pa over five years, and in third spot is the Ironbark Paladin Property Securities Fund, which posted 5.99%pa over five years.

According to fund manager Vanguard, if you invested $10,000 in Australian listed property in 1990, your accumulated investment value would have been $95,395 as at June 30, 2020 (at 7.8%pa).

Robin Bowerman, Vanguard’s head of corporate affairs, says while Covid-19 and its impacts could not have been predicted, bear markets are to be expected.

“However, times like these can be unnerving for even the most disciplined of investors,” he says. “There’s a wealth of research to show that time in the markets benefits most investors more than market timing, largely because market timing is incredibly challenging.

“The best and worst days often happen close to one another and in many cases timing the market for re-entry simply results in selling low and buying high.

“It can be hard to tune out daily market noise – particularly when it is being driven by a global pandemic – and procrastination is a natural result for those at the start of their investing journey. The antidote is a disciplined plan to invest small, affordable amounts over the long term and let compounding and market returns go to work.” Fund manager Pengana doesn’t usually buy into Australian listed property, but recently saw some opportunities and a brighter future. It says the Australian Real Estate Investment Trust (A-REIT) sector fell 35% in March but rallied 29% in the following six months and outperformed the broader equities market by 13%. It says good performance by A-REITs largely came down to rental collection for office and industrial assets remaining high.