InvestSMART Diversified Property & Infrastructure Portfolio Update - December 2018
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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.
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