WHILE the LPT sector has delivered 25.9% over the last financial year, investors who have not diversified within this sector may well have suffered this year or at least had significant volatility along the way.
This has been due to significant variations in the returns from individual Listed Property Trusts and significant volatility during parts of the year.
Over the year, the sector delivered 25.9% and over the last 10 years has now delivered an average return of 14.5% per annum, defying its lower risk profile by still outperforming shares, which delivered 13.2% over the same period.
This year’s performance was a dramatic reminder of the need to diversify, with one stock losing as much as 73.8%, contrasting with the highest return of 140.5% (Trinity Property Group), a trust APN were significantly overweight.
Some investors can sometimes get caught up in a rising market, and think that investing in any LPT will serve as a reasonable proxy for the returns from the property market generally.
This type of strategy is fraught with danger.
In the last six months the LPT index fell 0.11%, whereas our domestic property securities funds delivered returns of 7.7% (APN Property for Income Fund No 2) and 4.4% (APN Property for Income Fund) respectively.
This was an excellent result and reflected APN’s much lower risk profile for its property securities funds than the LPT index.
We focus significantly on sustainable income returns from LPT’s and avoiding those property securities with a higher risk profile in their earnings from such activities as undertaking corporate activities and funds management.
What our clients and most LPT investors want to achieve is a consistent income returns. Investors don’t thank you when they are relying on a reasonably consistent return only to find prolific volatility.
Volatility does not work well when you are retired and need to pay bills or go on your next holiday.
The message has to get through to investors that diversification with LPT investments is essential risk management.
Sure, the sector produces consistent income but the investor still needs to manage risk.
The other key takeout form the performance of the sector apart from the obvious M&A activity, was the strong performance of the office market sub sector averaging an increase of 31.6%, ahead of all other sub sectors.
This office market outperformance was consistent with our view that the sector was undervalued and we have held this view and invested overweight office.
Particularly strong has been the performance of the
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Combine these factors with low levels of new supply coming on stream in the short term and you have a recipe for a strong office sector.
By
Australian Property Journal
