Direct offshore property stocks more attractive than Africa

Investors should try to buy property stocks directly in the US, UK, Europe and Australia, says Stanlib’s head of listed property funds, Keillen Ndlovu.

Stanlib the investment bank, believes right now investors need to put their money into developed markets as Africa offer too much economic and political risk.

Investors should try to buy stocks directly in the US, UK, Europe and Australia.

"Our message is we prefer offshore property to local property and it makes sense for investors to diversify, that is to have not only local property but to consider offshore property as well,” says Stanlib’s head of listed property funds, Keillen Ndlovu.

With South African real estate’s total return tipped to barely beat inflation this year, fund managers are investing in real estate firms on offshore exchanges or buying into South African-listed firms that own properties abroad or have a dual listing.

Many companies are listed in SA and abroad. Often these companies operate in SA and in one or two other countries.

Ndlovu says right now SA is not as attractive as other markets are. He says investors can buy directly into companies in the US, UK and Australia. Other parts of Europe are also highly attractive according to Ndlovu.

Since inception, his STANLIB Global Property Fund has ranked ninth out of 84 funds in the world over just over five years. The fund is heavily biases towards the US with about 57.26% of it being US focused. This is followed by the UK with 10.15% and Europe with 10.32%. Australian companies make up 6.33% of the fund.

US listed property yields are currently 4.5% in dollar terms which were higher than the respective bond markets, with that country’s 10-year bond yield at 1.8%. Stocks are trading at 5%-10% discount to net asset value on average. This was while SA listed property yields are averaging 8% and lower than the 10-year bond yield of 9.2%.

His biggest holding is Simon Property Group which makes up 6.47% of the fund which is then followed by Public Storage which makes up 4.9% and then industrial company Prologis which accounts for 3.49%.

Ndlovu says his South African fund means he will continue to invest in SA but right now he is spending more of his time looking abroad and encouraging more investors from SA to buy into his global fund which by definition cannot hold South African stocks.

Ndlovu expects better than expected economic growth globally in developed market and Lower interest rates for longer which will help his developed market fund. There is also a limited supply of properties and limited bank funding meaning his established stocks should do well.

Ma’alot Investments portfolio manager Maurice Shapiro says offshore is more attractive but dual listings are not necessarily offering a truly international product.

“Currently the economic and also political risks in SA are such that many international property companies are just more attractive from a risk-adjusted perspective. The World Bank in February revised it economic growth forecasts for South Africa from 1.4% this year to 0.8% and its 2017’s forecasts from 1.6% to 1.1%, so Economic growth expectations for SA are weak. I am also concerned about sudden government policy changes,” he says.

“I believe that many South African fund managers are looking to access international property exposure, because of similar SA concerns. It depends on the mandates of their funds on how they can access the international exposure. Many may seek to invest in property companies which are dual-listed on the JSE and an International Exchange.

However, these dual-listings do not necessarily give investors true international exposure as they are often only invested in one or two similar geographies markets, I believe there is a need for a truly globally diverse property dual-listed offering,” says Shapiro.