Page 172 - Profile's Unit Trusts and Collective Investments 2021 issue 2

CHAPTER 9

Index and the FTSE/JSE All Property Index. Furthermore, it includes the flexibility to invest in (a)
selected high yielding equities and (b) collective investment schemes, which means that the fund
can invest in ETFs (such as the CoreShares S&P Global property ETF or the Sygnia Itrix Global
Property ETF) should some additional diversification be required.
Please comment on your investment year (July 2020 – June 2021) from a fund manager's
point of view.
Being one of the sector most affected by the Covid-19 pandemic, the past 12 months have proved to
be exceptionally challenging for the sector as a whole, although we are grateful to have navigated it well.
Whilst the focus has been on the last 12 months, it is worth bearing in mind that the SA Listed
Property Sector has been in a bear market since the end of 2017. The events of 2020 just added fuel
to a fire that was already blazing. In this regard, and given that this fund is relatively small and
hence quite nimble, we were well positioned ahead of the pandemic. We had a large offshore
exposure which held up better due to rand weakness, and we were selective in our local holdings,
given the already-evident pressure on the local economy and the impact thereof on vacancies and
rental reversions.
As the pandemic unfolded, we believed that the share price reaction of certain counters was
excessive and so increased exposure to those companies where prices reflected a doomsday scenario
which we felt was unwarranted. Once the initial lockdown was over, we also recognised the resilience
of rural retail centres, where we already had a reasonable exposure, and increased our weighting.
In terms of risk management, what methods or strategies are you able to use to protect your
clients' investments?
We are a long-only asset manager and therefore do not undertake short selling or hedging
within the portfolio. In terms of risk mitigation:
We are not benchmark huggers at all. We are nimble and not afraid to vary widely from the

benchmark to back our convictions.
We consider property to be a long-term building block in an income portfolio. Property has a
unique ability to escalate both income and capital over the longer period despite medium to
shorter-term bouts of volatility driven by sentiment or interest rate moves. Our investment
philosophy looks to protect this increasing stream with every lever available to us whether it
be shifting geographies (foreign versus local), portfolio (office vs retail vs warehousing &
logistics) or business model (large regional malls, township malls or unique rental stream).
Our low expense ratio is specifically designed to make the income more meaningful and

sustainable, to encourage a focus on income over capital value.
Please comment on the year ahead and, if possible, estimate the performance of your fund
over 2 or 3 years. What are your targets and objectives for the year ahead?
Our investment philosophy is anchored around the importance of generating an income from
clients' investments, and for that income to grow from year to year. That is the framework against
which we build the portfolio. 2020 was an exceptional year in which investment income came
under severe pressure, especially in the listed property sector. From that point-of-view, the income
distribution for the fund declined from 6.29c per unit in 2019 to 4.22c per unit in 2020. Our
immediate goal is to ensure that the fund's income distributions recover and resume their upward
growth trajectory. Notwithstanding the change in market focus to a "total return" perspective, we
are paying close attention to the ability of each one of our holdings to pay distributions and
whether those distributions are sustainable over the medium term.
What are your expectations for the property sector?
In brief, we believe that the easy part of the recovery from the depths of the pandemic has
occurred and further recovery will be a slow grind higher from here, although there will clearly be
some sectors and geographies that recover faster than others. For selected sectors, there should
still be a strong recovery in net operating income, driven by less discounting and rental relief,
coupled with the ability to operate at 100% of GLA. Covid-19 has also generally fostered a better
mutual understanding between landlord and tenant, which should benefit both parties. We are
encouraged by the improvement in balance sheets that has taken place – a trend that was already in
place before Covid-19 – and believe that further improvement will reduce the risk premium

170 Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts