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The Pathfinder Global Property Fund was launched in July 2015. It invests in listed companies from around the world that earn most of their income from property-related activities. JUNO speaks to John Berry, executive director of Pathfinder Asset Management, about going global with property.
Most New Zealanders are comfortable with investing in property: they put their money into a family home, and then perhaps into a rental property. Some may invest in listed property shares or become part of a group investing in commercial property.
But fewer Kiwis are as comfortable investing in property outside New Zealand, let alone aware that they can diversify across countries and sectors. The Pathfinder Global Property Fund was set up to address this issue.
As at May 2016, the fund has achieved an annualised return of 7.63 per cent.
Limitations to investing locally
The New Zealand property market is small and this limits what property investors can achieve locally.
The market makes up less than 0.1 per cent of the global property market. Only nine property companies are listed on the NZX, and each one is small by international standards.
In New Zealand we have seen a number of factors affecting our property market:
• solid job and income growth
• historically low mortgage interest rates
• runaway property inflation
• high demand for property
• record high immigration
• inadequate property supply
John Berry says the team at Pathfinder also recognises New Zealanders’ preference to invest at home.
“Investors like to be able to see the buildings they are invested in and know the names of tenants. For this reason, we currently have just over 10 per cent of the portfolio invested in listed, domestic property companies.”
Despite that preference, the chance to invest in global property, as well as local, is appealing for investors who are interested in diversity.
It makes sense to spread investment risks as widely as possible, to offset New Zealand’s size, geographic isolation, and what some see as our unstable economy.
In the same way as investing in global shares can offer big benefits, investing in global property can open doors to different countries. You can put your money into bigger companies than we have in New Zealand, and across a broader range of property types.
Berry believes investment in the global property market makes sense for any Kiwi looking to diversify their portfolio and spread their investment risk.
Reduce the risk
Effectively, the Pathfinder Global Property Fund manages macro risks: political upheavals that affect markets. An example of a macro risk would be the upcoming ‘Brexit’ referendum in Britain. Berry says: “Brexit will have a long-term impact for the UK as the financial centre of Europe.”
To avoid this kind of fallout, the Global Property Fund spreads investments across 10 countries and 83 property companies. These include retail, industrial, office, hotel, residential, and healthcare properties. Currently 54 per cent of the fund’s portfolio is allocated to North America, 17 per cent to Britain and Europe, 10 per cent to New Zealand, and 19 per cent across the rest of the Asia-Pacific region.
Pathfinder’s analysts research a wide range of markets, countries and property sectors, to determine where to invest.
Berry explains: “For us, the most important investment decisions are at the highest level. Should I have any exposure to German or Japanese property? Or American office buildings? Or the UK market?”
To answer these questions, first the researcher must understand the bigger picture – the macro environment. This can include a country’s Gross Domestic Product (GDP), rates of inflation, unemployment levels, and any change in population.
Then the team has to evaluate the market and how property is valued in each country.
Volatility of the New Zealand dollar
Movements in our own currency can have a big impact, whether you are travelling on holiday to Australia or investing in American shares.
To avoid the impact of currency fluctuations, Pathfinder hedges to reduce these peaks and troughs. Hedging is a method of investing to reduce the risk of price movements.
“We target a 75 per cent hedge, but it can be higher or lower if we have a strong view on valuation of the dollar,” says Berry.
Listed versus unlisted property funds
Speed and adaptability can make a huge difference in the global property market.
Liquidity, being able to buy or sell an investment quickly and easily, is a key benefit of investing in listed property funds.
Most unlisted funds or property syndicates, where people pool together to buy retail, commercial or industrial property, require the sale of a building before investors get their money back. However, the structure of the Global Property Fund means investors can buy or sell their units at any time.
Another advantage of investing in listed property companies is being able to change investment focus, by increasing or reducing your investment in a country, region or property sector. Property syndicates and unlisted property funds don’t have that same flexibility.
“Property syndicates and unlisted funds generally have higher management fees than the listed companies we invest in. Pathfinder tries to minimise fees wherever possible,” says Berry.
“Listed property companies provide numerous investment opportunities, which means significant diversification across markets and the number of underlying properties owned.”
• Product: Investment in global property shares.
• How it works: Investing in global property shares offers New Zealanders the chance to put their money into a liquid, diversified, global property investment, where currency risks are managed.
• Offerer: Pathfinder Asset Management. The Pathfinder Global Property Fund is PIE registered.
• Manager: The fund is managed by John Berry and Paul Brownsey. Pathfinder Asset Management is overseen by a board of four directors.
• Minimum investment: The minimum initial investment for the Pathfinder Global Property Fund is NZ$10,000.
• What we like: This fund taps into the need to strike out beyond the local property market and diversify. Property is often seen as an inflation hedge too, because rents generally rise in line with the Consumer Price Index (CPI).
• What we don’t like: Returns may be positive or negative as with any investment. However, the fund is fairly new and is yet to complete its first audit, so it’s hard to assess performance this early.
• Conclusion: Investing in the global property market makes sense for anyone who wants to diversify their portfolio and spread their investment risks.
INFLATION: A general increase in the cost of goods and services, and a corresponding fall in the purchasing power of a currency.
INFLATION HEDGE: An investment that may protect you against inflation.