Most global property fund managers continue to be affected by currency losses and have not paid distributions during the 2010 financial year, according to research house Morningstar.
“Currency hedging was a major element of our global property sector wrap in 2009, and this issue remains pertinent, particularly in the context of June 2010 distribution payments,” Morningstar fund analyst John Valtwies said.
“Essentially, over 60 per cent of global property funds we have qualitatively rated have not paid their distributions for this period because of hedging losses.”
The fund managers who have not paid distributions over the recent financial year include BT, Colonial First State, EQT SGH LaSalle, Fidelity, ING Clarion, Invesco, Macquarie, Perennial and Zurich/Cohen & Steers.
“Although returns for the global property asset class clambered back over 30 per cent in 2009, and 2010 to date has been positive, fund managers have been carrying forward previous currency losses which have outnumbered the gains from income, explaining why most global property fund managers have not been making distribution payments,” Valtwies said.
“As the Australian dollar fell around 40 per cent in 2008 and around 10 per cent in the month of May 2010 alone, the offshore value of portfolios increased significantly from currency alone, but this was offset by losses on the hedging contracts.
“Fund managers have been forced to use distributions from the real estate investment trusts in their portfolios, which would normally flow through to fund investors, and/or liquidate slices of their portfolio to pay for the losses on these currency hedging contracts.”
Persistent economic uncertainty was causing the Australian dollar to remain volatile and the outlook for the currency remained uncertain, he said.
