Australian property ETFs are expected to deliver the high yields in 2014: AltaVista

Australian property exchange traded funds (ETFs) are expected to deliver the highest yields in 2014, with income returns approaching 6 per cent, according to independent ETF research house AltaVista, which has welcomed four newly listed ETFs from Market Vectors Australia.

Michael Turner, Head of Sales & Corporate Development from AltaVista, said in a review of the new ETFs from Market Vectors Australia: “In relation to yield, the Australian ETF marketplace offers some broad alternatives. Property ETFs, on average, are forecast to deliver the highest yield in 2014, followed by financial sector ETFs and then the high-yield funds.”

AltaVista said the consensus constituent forecast yield for the three property ETFs on the Australian Securities Exchange (ASX) for 2014 is 5.63 per cent. In comparison, the three ETFs focused on the ASX200 are forecast to deliver a yield of just 4.47 per cent while four listed high-yield ETFs are forecast to deliver 5.15 per cent.

Market Vectors ETFs, which listed on the ASX last month, are based on indices specifically developed by Market Vectors Index Solutions (MVIS), the index company of Van Eck Global, which is the parent company of Market Vectors Australia.

Market Vectors Australian Property ETF (MVA) offers a simple way of gaining exposure to the Australian Real Estate Investment Trust (A-REIT) sector. The ETF tracks the Market Vectors A-REIT Index which provides exposure to a minimum of 10 A-REITs and an individual cap weighting of 10 per cent. This provides for greater diversification and reducing large capitalisation biases to companies such as Westfield Group and Westfield Retail found in traditional market capitalisation weighted indices.

“The Market Vectors new ETFs are quite differentiated in that they track purpose-built indices provided by Frankfurt-based MVIS. Ultimately, this creates greater real investment choice as we can expect the funds to deliver different investment outcomes across the spectrum of analysis,” Mr Turner said.

“The new funds deliver both price and ‘peer fund’ competition – arguably a needed impetus for the Australian ETF marketplace and investors alike,” Mr Turner said.

In addition to the Market Vectors Australian Property ETF (MVA), other ETFs recently listed by Market Vectors on the ASX include Market Vectors Australian Banks ETF (MVB) – the first ASX-listed ETF to offer direct access to the banking sector, Market Vectors Australian Resources ETF (MVR) and Market Vectors Australian Emerging Resources ETF (MVE), which offer diversified exposure to the resources sector.

Arian Neiron, Managing Director of Market Vectors Australia, said: “Our purpose-built ETFs provide investors with targeted and innovative investment opportunities. They intelligently capture a desired market exposure, offering Australians greater investment choice. We are very pleased this has been acknowledged by AltaVista.

“Indeed, our products compare well to their peers, based on the superior diversification opportunities they offer and their competitive pricing. The launch of our Australian Property ETF is well timed, with strong yields predicted in 2014 and the ETF offering balanced exposure to Australia’s blue-chip property market,” said Mr Neiron.

“MVA displays solid comparative fundamentals, being marginally superior in our score of investment merit,” Mr Turner said.

“MVB delivers immediate banking sector only diversification. On a comparative basis, MVB has strong investment fundamentals across all metrics, is competitively priced even though it only holds seven stocks and provides greater bank stock diversification and exposure than alternate funds,” Mr Turner said.

“MVR and MVE deliver additional investment options and choice for investors seeking to gain broader resources stock exposure. Due to the fund’s [underlying] index, MVR’s underlying constituents are markedly different from its peer funds. Case in point is BHP Billiton: MVR holds 8.4 per cent of BHP versus in excess of 40 per cent held by peer funds. Rio and Woodside are other examples, though not as divergent. Our research indicates strong investment fundamentals,” Mr Turner said.

Market Vectors ETF business was first launched in the US in 2006. The business now offers over 50 exchange traded products (ETPs) spanning international markets, commodities, emerging markets, global equities, fixed income and currency sectors. The Market Vectors family totalled US$23 billion in assets under management, making it the seventh largest ETP family in the US and tenth largest worldwide as of 30 September, 2013. Market Vectors Australia is a wholly owned subsidiary of Van Eck Global.

AltaVista employs quantitative research, which delivers comprehensive fundamental investment analysis that incorporates historical, current and expected metrics for equities and fixed interest ETFs. The practicality of the research is that it identifies superior ETFs amongst peer fund groups. It allows advisors to select funds based on the investment criteria most relevant to the client’s investment criteria and objectives.

AltaVista’s “best of breed offering comprises its proprietary quantitative research on 51 equities-based and 10 fixed interest-based ETFs on the ASX and their suite of embedded SAA Model Portfolios. On a global basis, AltaVista covers over 790 equities-based ETFs listed on the NYSE.

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Actively managing real estate assets can bring value.

Independent fund manager Resource Real Estate Global Property Securities (Australia) (RRE GPS) says Australian institutional investors need to take a ‘next-generation’ approach to real estate investing, and recognise property as dynamic businesses that actively drive value-creation, rather than passive building assets.

In Australia this week speaking with a range of institutional investors, New York-based RRE GPS Portfolio Manager Scott Crowe said property investing had changed enormously in recent years.

“Times have changed and as real estate companies have become more mature and dynamic. As such, the optimal approach to investment also needs to evolve. Rather than simply a static portfolio, real estate securities are actively managed and the focus of investors needs to be on the ability of a company to generate long term intrinsic value growth,” said Mr Crowe.

With the first phase of declining interest rates and stabilising fundamentals behind us, RRE GPS believes there has been a clear shift into the growth phase of the real estate cycle – as evident by improving global demand and limited new supply – delivering an opportunity  for Australian investors to generate returns and earnings growth from global property securities.

A ‘next generation’ approach – taking in a combination of factors including the business model, quality of management and the asset itself – offers a unique opportunity for investors in this growth phase.

“We believe intrinsic quality will generate returns in this new world of real-estate investing. It’s increasingly important to look at factors like quality of the balance sheet and quality of  management who can turn a B-grade property into an A-grade property, or enter a new asset class such as retirement homes,” added Mr Crowe.

Growth in global real estate multiplies while Australian sector still maturing

RRE GPS says understanding of global property opportunities among local investors has come a long way since the financial crisis; however Australian institutions were surprised to learn the global rate of growth of the sector in recent years.

In 2003, it is estimated the global securities universe held an approximate market capitalisation of US$600 billion, while today it holds around US$1 trillion (including emerging markets). RRE GPS predicts the size of the sector could grow by a further 50 per cent in the next five years.

RRE GPS Head of Asia Pacific and Portfolio Manager John Snowden believes Australian investors should ensure a more diversified portfolio through global property securities, and away from the Australian REIT sector due to its high concentration levels in a few large companies.

“Five companies account for over 80 per cent of the A-REIT market capitalisation, and Australia is a very small player globally, less than five per cent of the global real estate share market. We still have some way to go and the Australian sector is still maturing,” Mr Snowden said.

“RRE GPS uses a proven investment process and strong track record to search the broader universe of 300 stocks and filter through to an investment portfolio of 50 to 70 securities,” Mr Snowden concluded.

Resource Real Estate, a US based investment management company recently launched RRE GPS in early October via a joint venture with Channel Capital. Led by industry veterans Scott Crowe (New York) and John Snowden (Sydney), the joint venture offers local institutional investors access to quality global property security investments.

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