Performance of currency hedged global property securities funds has continued to be strongly positive in absolute terms over the year to 30 June 2011, but most actively managed funds have generally underperformed their benchmarks. This is despite the sector being one which should provide managers with sufficient opportunities to outperform their benchmarks.
S&P Fund Services analyst Peter Ward said, “Currency hedged global property securities fund performance over the year to 30 June 2011 has been strong, at levels well above what investors should expect over the longer term.”
“However, it has moderated from the previous year and active funds’ relative performance has been affected by a variety of less predictable challenges including macroeconomic factors, sovereign debt issues, geopolitical events and natural disasters.”
A number of key findings from the sector review include:
- All but one of the currency hedged funds rated have resumed paying distributions after offsetting previous foreign currency hedging losses. Most of the losses originated in 2008 due to extreme currency volatility.
- Sector performance volatility for the year to 30 June 2011 has further moderated compared to 2009-2010.
- Less difference between the best and worst performing hedged products over the past year compared to the previous year reflected the more ‘benchmark aware’ approach that a number of active managers have taken. This has contributed to lower tracking error among the funds.
- Performance of unhedged funds was not as strong as that of their currency hedged counterparts – currency hedged funds outperformed unhedged funds by 24%-27%.
- Funds which invested only outside Australia outperformed funds investing globally, including Australia, as Australia’s REIT sector performance was weaker than elsewhere.
The 2011 sector review covers 17 managers and 20 listed property securities capabilities – 12 global capabilities, five international (ex-Australia), one emerging markets product and two global and domestic blended funds.