Market Review Investment markets around the world recovered ground during July as improved sentiment for risk assets reflected diminished concerns over the sovereign debt issues in Europe and the extent of the slowdown in China. The Australian real estate investment trust (A-REIT) market gained 1.5% over the month, as measured by the S&P/ASX 200 A-REIT Accumulation Index. The A-REITs relatively defensive characteristics held the sector back relative to the broader Australian equity market which gained 4.5% this month.
On the back of this improved appetite for risk assets, A-REITs leveraged to a growing economy and those with offshore exposures tended to outperform their more defensive cousins. For example, EDT Retail (+9.6%) and Valad Property Group (+2.2%) outperformed CFS Retail Property (-0.5%) and Commonwealth Property Office (-0.5%).
The portfolios overweight exposure to Valad Property Group aided performance as it was one of the smaller capitalised offshore A-REIT names that gained ground this month. Valad announced that its European business had been appointed by Kefren Properties as the investment manager for its real estate portfolio in Sweden. Our overweight position in Valad is premised on our medium term view that investors have underestimated the value and growth potential of the firms European business.
Stock specific developments are likely to be a critical driver of A-REITs over the remainder of 2010, as the valuation spread between the most attractive and least attractive names in the investment universe remains at four times historical averages. Therefore, we have positioned the portfolio to benefit from stock specific opportunities and we continue to expect to produce above normal portfolio returns over the medium term.
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VPG Price at posting:
$1.92 Sentiment: Hold Disclosure: Held
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