New research from Lonsec shows that net flows across the A-REIT sector have been weak, despite its returning 11.4 per cent in the year ending March 2016 – and by contrast with negative returns in equities.
Lonsec noted that both global bonds and global-listed infrastructure also returned significantly less than A-REITS over the same time period, offering 4.5 per cent and 3.8 per cent respectively.
Many A-REITs experienced negative net fund flows in the year to December 2015, said Lonsec Research senior analyst Nick Thomas.
“You might normally expect that, when an asset class performs as strongly as the A-REIT sector has done over the past few years, retail investors would sit up and take notice,” he said.
“However, with one or two exceptions, any pick-up in fund flows has been conspicuous only in its absence.”
Over 1, 3 and 5 years, A-REITs have consistently outperformed other asset classes. Mr Thomas, however, contends that poor performance during the global financial crisis may still leave some investors feeling wary.
“A lot of investors haven’t forgotten the pain of capital losses from a sector they expected to be more defensive,” he said.
“On one level, you can understand why investors may still be cautious, but on the other hand, they may have missed structural improvements within the sector since this time.”
Ten-year returns for A-REITs are lower than other asset classes as a result of the GFC, which Lonsec notes saw the S&P ASX300 A-REIT Accumulation Index fall 72.2 per cent to a new low in 2009.
Mr Thomas said that following the GFC, active A-REIT managers “were able to take advantage of a sector that had been all but deserted by the market” and steadily improve returns.
“However, with the bull market continuing into 2016, valuations in the sector have started to look stretched, and it has become more difficult for active managers to find value. But when market conditions change, that’s when an active strategy should begin adding value once again,” he said.
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