MLC Global Property Fund

Transcription

1 MLC Global Property Fund MLC Annual Review September 2009 MLC Investment Management Level 12, Miller Street North Sydney NSW 2060 MLC review for the year ending 30 September 2009 Page 1 of 9

2 Important information This information has been provided by MLC Limited (ABN ) a member of the National Group, Miller Street, North Sydney This material was prepared for advisers only. Any advice in this communication has been prepared without taking account of individual objectives, financial situation or needs. Because of this you should, before acting on any information in this communication, consider whether it is appropriate to your objectives, financial situation and needs. You should obtain a Product Disclosure Statement or other disclosure document relating to any financial product issued by MLC Investments Limited (ABN ) and MLC Nominees Pty Ltd (ABN ) as trustee of The Universal Super Scheme (ABN ), and consider it before making any decision about whether to acquire or continue to hold the product. A copy of the Product Disclosure Statement or other disclosure document is available upon request by phoning the MLC call centre on or on our website at mlc.com.au. An investment in any product offered by a member company of the National group does not represent a deposit with or a liability of the National Australia Bank Limited ABN or other member company of the National Australia Bank group of companies and is subject to investment risk including possible delays in repayment and loss or income and capital invested. None of the National Australia Bank Limited, MLC Limited, MLC Investments Limited or other member company in the National Australia Bank group of companies guarantees the capital value, payment of income or performance of any financial product referred to in this publication. Past performance is not indicative of future performance. The value of an investment may rise or fall with the changes in the market. Please note that all return figures reported are before management fees and taxes, and for the period up to 30 September 2009, unless otherwise stated. The specialist investment management companies are current as at 30 September Funds under management figures are as at 30 September 2009, unless otherwise stated. Investment managers are regularly reviewed and may be appointed or removed at any time without prior notice to you. MLC review for the year ending 30 September 2009 Page 2 of 9

3 MLC Global REIT Commentary Benefits and risks of global REITs Investment objective How you can assess performance Where MLC invests your money When you invest in property securities, you effectively own part of Real Estate Investment Trusts ( REITs ) and companies in the property industry that are listed in markets around the world. This gives you exposure to future rental income, property values, gearing within REITs, development potential, fees from property and funds management. Things to consider: Returns are driven by many factors including the economic environment in the various countries, as this determines rental demand and property values, and tends to influence profit expectations. Investing overseas exposes your investment to movements in the exchange rate between the Australian dollar and foreign currencies. These movements can largely be removed by hedging the currency exposure back to Australian dollars. Global REITs may be volatile and are usually included in a portfolio for their growth and income characteristics. The strategy is designed to be a complete portfolio for the global property securities asset class, and aims to deliver growth by using investment managers who invest and diversify across many companies and securities within that asset class. You can assess the performance of the Fund against its market benchmark over a full market cycle. When making this assessment, be aware that the market benchmark doesn t take into account fees and taxes that may apply to your account. Your MLC Global Property Fund is benchmarked against the UBS Global Investors Index (hedged into Australian dollars). The Fund invests primarily in property securities around the world, including listed Real Estate Investment Trusts and companies across most major listed property sectors. It doesn t normally invest in direct property. Foreign currency exposures will generally be substantially hedged to the Australian dollar. MLC review for the year ending 30 September 2009 Page 3 of 9

4 Executive summary Throughout the September quarter, most global REIT markets continued their advance that commenced earlier this year. For instance, the UBS Global Investors Index (AUD hedged) was up by 31% this quarter. While this resulted in a less severe -24.2% return for the year to 30 September (compared to the -42.5% one year return to 30 June 2009), it s still substantially negative. Much of this rally has been due to improving economic growth prospects, which has helped underpin forecast property fundamentals (done so in the absence of much transactional activity in the physical property market), and also the measures many global REITs have taken to improve their financial situation and balance sheets. Hong Kong was the best performing market during the year. In fact, it was one of the few markets to record a positive return in local currency terms. Hong Kong s REITs have performed well due to the strength of their balance sheets and superior prospective earnings growth, which is linked to China s firm economic outlook. Singapore s REIT market performance was also positive (local currency terms) as was Europe while Japan s was marginally negative. The worst REIT market performers over the year were Australia, USA/Canada and the UK. Your global REIT return for the year was -17.8% (before fees and tax). While your return was negative, it was 6.4% better than the market return. Our Global REIT strategy s significant ownership of Asian REITs was very beneficial to your returns versus the market index. Your multimanager approach has therefore helped protect you from the worst of the market s decline in the last year. Two of your managers, Resolution Capital and Morgan Stanley, outperformed by substantial margins while La Salle underperformed. The table outlines the performance. Performance to 30-Sept-09 MLC Global Property Fund (takes into account fees) MLC Global Property Fund (takes into account fees and tax) MLC Global Property Fund (before taking into account fees and tax) UBS Global Investors Index (hedged) Fund MLC Wholesale MLC Masterkey Super Fundamentals 5 Years % p.a. 3 Years % p.a. 1 Year % 3 Months % MLC Wholesale / n/a Masterkey Super n/a MLC review for the year ending 30 September 2009 Page 4 of 9

5 Absolute and Market Relative Returns In the next chart, excess returns are shown on a 1 and 3 year basis, rolling through time from 2005 to 30 September The return of the market index is represented by the intersecting horizontal line. This means that if the rolling excess return line is above the horizontal line, the strategy has outperformed the index, and vice versa. This is a better way for you to assess the returns you are receiving from MLC, rather than looking at returns at a single point in time (as in the above table). As you can see from the following chart, this strategy has produced better than index returns with a high degree of consistency. While the performance history is limited, as the strategy was only launched in 2005, the rolling three year excess return has been consistently positive. Rolling one year excess returns have mostly been positive as well. We are particularly pleased with your 6.4% excess return for the year to 30 September which was achieved in what has probably been the most challenging and difficult year in the history of the global REIT market. The result is due to the stock selection of the managers we have appointed on your behalf, and the quality of their insight. The global REIT market contains over 220 REITs scattered across many different countries. As you would appreciate, not all are equally attractive in terms of quality or their prospective return. Some are worthy investments for you but there are a lot that aren t. An excess return of 6.4% in the year suggests that your appointed managers have done a good job in a very difficult environment, choosing between the REITs that are investment grade and the ones that should be avoided. We do acknowledge this outperformance may provide you with little comfort when your absolute return for the year (-17.8%) is distinctly negative. However, outperformance has been a good outcome in such a difficult market and certainly preferable to underperforming. The graph shows returns of your Global REIT Strategy compared to its market benchmark Annualised Excess Return UBS Real Estate Investors Trust Index (hedged) 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% Rolling Performance in Excess of the Index MLC MasterKey Super Fundamentals Global REIT Portfolio (before taking into account fees and tax) Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 1 Year 3 Years MLC review for the year ending 30 September 2009 Page 5 of 9

6 Your managers Irrespective of the market environment, MLC believes appointing a number of different, experienced managers is far preferable to a strategy that relies on just one or a small number of managers for country, sector and stock selection. We don t believe it s appropriate for you to be dependant on a narrow range of insights, especially if it s from just one firm, when our research has identified a number of managers with exceptional global REIT skills. We also aim to reduce your dependence on one or a narrow range of investment styles. This is why we have appointed three managers who are responsible for stock selection the REITs to own and, just as importantly, the REITs to avoid. The diversity of the MLC global REIT strategy is evident from the following table which shows the investment style of each manager, who each manage a third of the strategy. All of the managers we appointed are providing you with tailored portfolio arrangements as well. This is an example of how MLC uses its significant scale on your behalf, in this case negotiating with your managers to provide special portfolio arrangements we believe will deliver you superior return outcomes. As mentioned earlier, the strategy outperformed the market index return by 6.4% in the year. This pleasing outcome was due to Resolution Capital s and Morgan Stanley s substantial outperformance. Morgan Stanley was the best performer, outperforming by 17.1% while Resolution Capital s outperformance was by 9.4%. Morgan Stanley s portfolio has a significant bias to selected REITs in Hong Kong, Japan and Singapore because they believe the REITs in these markets tend to have superior balance sheets and better earnings potential than REITs elsewhere in the world. Morgan Stanley s low exposure to the US REIT market has also helped. Resolution Capital s deliberate strategy of focussing stock selection on well managed, conservatively geared property vehicles with strong operating cashflows continues to benefit your return. LaSalle has a smaller exposure to Asian REITs and a higher exposure to US and Australian REIT markets. This has caused them to underperform the index and your other managers. While this may not sound like an ideal result, it s normal for some managers in a multimanager strategy to underperform. Often it s because their style is out of favour or the market prefers REITs that the managers have chosen not to own. We retain our conviction in LaSalle. Manager summary table Manager Style Tailored mandate? Key role in strategy Key performance points LaSalle Relative Value Yes Morgan Stanley Absolute Value Yes Resolution Capital Relative Value Yes Blend of top-down & bottom-up insights Bottom-up stock picker Bottom-up stock picker, quality focus Stock selection detracted o/w Hong Kong & Singapore markets Quality focus has avoided REIT disasters Note: These are our judgements and the actual outcomes may differ to this. It s difficult to explain the role of any manager in a few words. Details of overall expectations were discussed in our Strategy Enhancement document. MLC review for the year ending 30 September 2009 Page 6 of 9

7 The graph shows manager excess returns vs index Excess Return vs UBS Real Estate Investors Trust Index (unhedged) (annualised for periods greater than 1 year) 25% 20% 15% 10% 5% 0% -5% -10% -15% Manager Performance in Excess of the Index MLC MasterKey Super Fundamentals Global REIT Portfolio (before taking into account fees and tax) LaSalle Investment Management Morgan Stanley Resolution 5 Years to Sep-09 3 years to Sep-09 1 Year to Sep-09 Quarter to Sep-09 Strategy exposures Having three experienced global REIT managers working for you means that you re getting access to the best investment opportunities globally. As a result of their investment decisions, your global REIT strategy is well diversified. At the end of September, it comprised 89 REITs chosen from thirteen different country REIT markets (shown in the following pie chart). Of the country REIT exposures within the strategy, America is by far the largest with 37 individual REITs owned (and one in Canada). The US property market is large and very diverse. Your European REIT exposure is spread across 12 REITs listed in six countries (Switzerland, Sweden, Norway, Netherlands, France, Finland) while your Asian REIT exposure is focused on 20 REITs in Singapore, Hong Kong and Japan. Note also that we have given your managers a genuine global mandate, which includes Australia. Australian REITs account for 11% of the strategy. Country exposure as at 30 September 2009 Global Regional Exposure MLC MasterKey Super Fundamentals Global REIT Portfolio Japan, 11.1% Other, 0.8% America, 40.4% Europe, 20.9% Australia, 11.3% Source: MLC Datawarehouse Asia, 15.5% MLC review for the year ending 30 September 2009 Page 7 of 9

8 Sector exposure as at 30 September 2009 Industry Exposure MLC MasterKey Super Fundamentals Global REIT Portfolio Other, 12.6% Diversified REITs, 13.5% Specialised REITs, 5.1% Industrial REITs, 3.0% Office REITs, 9.1% Retail REITs, 26.6% Real Estate Management and Development, 22.5% Source: MLC Datawarehouse Residential REITs, 7.5% The following table shows the top ten stocks by portfolio weight in the MLC Global REIT Portfolio as at 30 September 2009 Stock Name Region Industry Sector HONG KONG LAND HOLDINGS LTD Asia Real Estate Management and Development Portfolio Weight 5.9% UNIBAIL- RODAMCO Europe Retail REITs 5.4% SIMON PROPERTY GROUP America Retail REITs 5.0% WESTFIELD GROUP Australia Retail REITs 5.0% VORNADO REALTY TRUST America Diversified REITs 3.7% MITSUBISHI ESTATE Japan Real Estate Management and Development 3.4% STARWOOD HOTELS & RESTAURANTS WORLDWIDE America Hotels Resorts and Cruise Lines 3.2% AVALONBAY COMMNS. America Residential REITs 3.2% LINK REIT Asia Retail REITs 2.8% LAND SECURITIES GROUP Europe Diversified REITs 2.8% MLC review for the year ending 30 September 2009 Page 8 of 9

9 Stock story Simon Property Group Inc. ( Simon ) Simon is a retail real estate specialist with extensive interests across many retail property categories, including regional shopping malls and premium retail outlets. Simon s strategy is to have a significant presence in each element of the retail real estate spectrum. Simon is the second largest REIT in the world (second only to Australia s Westfield) and the largest public US real estate company. Based in Indianapolis Indiana, Simon owns and manages an exceptionally large retail property portfolio. It currently owns or has an interest in 324 retail properties in the US which generate annual sales of approx. US$60 billion. Simon s non-us retail property portfolio is also extensive and comprises 51 shopping centres in Europe (France, Italy, Poland), one in China, seven premium outlet centres in Japan and one each in Mexico and Korea. From an investment perspective, Simon rates highly. Aside from its strong balance sheet, Simon has considerable cash reserves and access to credit. It has also received the highest investment grade rating. Simon has also declared and paid dividends every year since it was listed on the New York Stock Exchange in With investment and property credentials such as these, it is not surprising that managers in MLC s Global REIT strategy have chosen this stock on your behalf. As a result, Simon is one of the largest investments in this strategy, accounting for 5% of the portfolio. MLC review for the year ending 30 September 2009 Page 9 of 9