InvestSMART Diversified Property & Infrastructure Portfolio Update - December 2018
Australian infrastructure continued to be viewed as a ‘bond proxy’ in the final quarter. This meant that Transurban, Sydney Airports, Aurizon and AGL Energy all performed positively for the portfolio. The standout was TCL which added 0.6% as the toll road provider’s underlying fundamental and strong distributions led to solid gains during what was a volatile quarter for equity listings. There were some specific headwinds for APA Group in the quarter which explains why it detracted -0.4% from the fund despite having the same characteristics as the other bond proxies in the portfolio.
Property, however, declined through the quarter as the latest housing and commercial rental data suggested rental yields are starting to flatline. The domestic facing Vanguard Australian Property Securities Index (VAP), heavily weighted to the likes of Scentre Group and Goodman Group, detracted -0.48% in Q4 on this news. Internationally, property also suffered on growth fears, seeing the SDPR Dow Jones Global Real Estate Fund detract -0.58% from the portfolio over the same period.
We note that global bond markets have started 2019 in a well-bid manner. The Australian 10-year bond hit 2.27% in the first week of 2019, its lowest level in over 6 years as risk-off trading continued. This kind of price action should filter into bond proxies in the interim and it is likely that infrastructure plays will perform solidly if volatility remains elevated.
To see more information on our Property & Infrastructure Portfolio, click here.
Frequently Asked Questions about this Article…
A 'bond proxy' refers to investments that behave similarly to bonds, offering stable returns and lower volatility. In the context of infrastructure investments, companies like Transurban and Sydney Airports are considered bond proxies because they provide consistent income and are less affected by market fluctuations, making them attractive during volatile periods.
Transurban performed well in the final quarter, adding 0.6% to the portfolio. This was due to its strong underlying fundamentals and solid distributions, which helped it achieve gains despite a volatile equity market.
The APA Group detracted -0.4% from the portfolio due to specific headwinds it faced during the quarter. Although it shares characteristics with other bond proxies, these challenges impacted its performance negatively.
Property investments declined due to flatlining rental yields as indicated by the latest housing and commercial rental data. This affected domestic property securities like the Vanguard Australian Property Securities Index and international funds such as the SDPR Dow Jones Global Real Estate Fund.
The Vanguard Australian Property Securities Index, which is heavily weighted towards companies like Scentre Group and Goodman Group, detracted -0.48% in Q4 due to concerns over flatlining rental yields.
Global growth fears led to a decline in international property investments, with the SDPR Dow Jones Global Real Estate Fund detracting -0.58% from the portfolio during the quarter.
Global bond markets started 2019 on a strong note, with the Australian 10-year bond hitting its lowest level in over six years. This trend is expected to benefit bond proxies like infrastructure investments, as they may perform well if market volatility remains high.
For more detailed information about the Property & Infrastructure Portfolio, you can click on the provided link to access additional resources or download the PDF for comprehensive insights.
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