Property can be the ‘comfort fit’ in a crisis, says Absa’s Warner

CLIENTS looking for comfort in uncertain markets should take a look at listed property, says Absa Investment’s Mariette Warner, one of the category’s leading fund managers and a professional with a 27-year grounding in retail, commercial and industrial property.

She acknowledges that many advisers will have to contend with nervous clients as concerns mount about a new recession in Europe, with knock-on effects in domestic markets, while rising inflation looks set to put a damper on real returns from supposedly safe bets like cash.

“In times like this, listed property has good claim to be the nearest thing to a comfort fit for clients,” says Warner, newly appointed manager of the Absa Property Equity Fund. “You might feel the pinch from occasional fluctuations in listed property share prices, but regular income streams pull the category through in the end.

“That extra dimension explains listed property’s impressive long-term track record.”

Up to the year ending 2010, the category’s compound average annual return over one year is 29.6%. Over three years the return is 12,2%, over five years it’s 18,1% .

Significantly, these returns are superior to those achieved by the ‘safe havens’ offered by bonds, cash and cash equivalents over the same periods.

“Advisers can’t blame clients for becoming confused when crisis appears to threaten,” says Warner. “They are advised – quite correctly – that it is important to take a strategic view and stay in the market.

“Then they see the JSE All Share Index is down 1.9% over the first three quarters while the All Bond Index is up 4,7%, with cash up 4% over the same period. The client is therefore getting two messages.

“In these circumstances it can be a comfort to learn that listed property gives them market exposure, but shares some of the characteristics of safer income products like bonds in view of regular income distributions from the property companies.”

Sentiment on interest rate movements always has an impact on category performance – a point highlighted early in the year when expectations of an imminent interest rate rise caused a first quarter correction across a category that had been the best performer of 2010 with that 29.6% total return.

The rate rise never came and low rates remained in place. The category then showed its traditional resilience and is up by a net 3.9% over the first three quarters.

“Occasional dips are inevitable,” says Warner. “That’s why advisers should stress that property is not for those with a short investment horizon. But history shows that those with a three-, five- or 10-year view are well rewarded.

“If a client has no or low allocations to this class, now could be a good time to suggest an option that tends over time to do better than cash and bonds while creating the opportunity for capital appreciation when market pressure eases.”