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Property: wide gap in returns

12 Jan 2017

The difference between the total returns of the best and worst performing property counters was nearly 100% in 2016, suggesting that shrewd stock picking will be critical in 2017.

Total returns include share price appreciation and income growth.

Hotel owner Hospitality Property Fund's B shares achieved a 45.99% total return, while the worst performer was UK-based Capital & Counties, which had a negative return of 51.48%, according to Stanlib.

"The listed property sector is not homogeneous. It is quite diverse. The gap between the best performer and the worst performer in 2016 was 97.47%," said Keillen Ndlovu, Stanlib's head of listed property funds.

The second-best real estate performer on the JSE was Equites Property Fund, with a 33.32% return. SA Corporate Real Estate followed closely with 32.55%, as did Dipula Income Fund's B shares with a 31.45% return. Rebosis Property Fund achieved 30.80% and Delta Property Fund had a total 29.66% return.

The second-worst real estate group was Capital & Regional with a negative 39.81% return. Redefine International returned a negative 38.60% and Intu Properties a negative 33.53%.

Atlantic Leaf Properties suffered a negative 32.54% return and Stenprop suffered a negative 29.75%.

On Tuesday, 10 December, Catalyst Fund Managers released a report showing that the South African listed property index (SAPY) outpaced cash, equities and bonds in December, boosting its overall performance in 2016.

The SAPY recorded a total return of 4.24% for December 2016, while bonds saw a 1.54% return, equities managed a 0.97% return and cash 0.61%.

The SAPY's historic yield ended December at 6.40%, which was 17 basis points lower than the 6.57% recorded in the previous month.

The yield to maturity on the long-term R186 government bond strengthened 11 basis points to end December at 8.92%. For 2016 overall, bonds were the best-performing asset class, delivering 15.42%.

Bonds were followed by listed property with a 10.20% return, then cash with a 7.37% return and finally South African equities, which gained 2.63% for the year.

Catalyst said in the report that although bonds and listed property historically exhibited a strong correlation in performance, this relationship had broken down given the increasing number of offshore-focused counters in the SAPY.

For 2016, offshore counters dragged the SAPY performance down relative to South African bonds as the offshore counters significantly underperformed counters with a greater exposure to South African property, thanks largely to a stronger rand.

"Although local fundamentals remain challenging, South African-centric funds have outperformed the foreign-focused funds for the year mainly due to rand strength," Catalyst said.

"Over the long term, we expect real estate fundamentals to drive performance," it said.

Source: Business Day

Source: I-Net Bridge

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