The investment objective of the STANLIB Global Property Feeder Fund is to maximise long term total return, both capital and income growth. Apart from assets in liquid form, it will consist solely of participatory interests in a single portfolio of a collective investment scheme operated in territories with a regulatory environment which is to the satisfaction of the manager and trustee of a sufficient standard to provide investor protection at least equivalent to that in South Africa, namely the STANLIB Global Property Fund.

Market overview

The UBS Investors Index returned around 9.4% in ZAR for the second quarter. US 10 year treasury yields continued to move lower ending the quarter around 2.5%. The strength in bonds was the main driver of performance during the quarter with the Federal Reserve actions remaining highly supportive of the bond market despite the tapering of bond purchases. The best performing regions were Japan, Australia and Continental Europe. Listed property in Europe was boosted by the possibility of Quantitative Easing in the region evidenced by declining bond yields and swap rates. The worst performing regions were UK and North America.

Portfolio overview

The STANLIB Global Property Feeder Fund only holds STANLIB Global Property Fund units and cash. The underlying portfolio underperformed largely due to cash drag in a rising market, allocation to Brazil and stock selection in North America. Stocks that detracted the most from portfolio relative return were BR Mall Participacoes SA, Tanger Factory Outlet Centers and Fonciere Des Regions. Japan, Hong Kong and Philippines made the biggest contribution to portfolio relative return. The underlying portfolio held an average cash balance of around 2.5% for the quarter.

Outlook

There has been an increased positive correlation between global listed property and bond prices in recent times. This suggests that price performance over next 12 months will be more dependent on the direction of US treasury yields and actions at the Federal Reserve and other central banks. Bottom up research according to UBS Research suggests positive earnings growth over the next 12 months with global listed property Investors currently trading more or less in-line with net asset value. The estimated implied forward dividend yield for the portfolio is around 3.6%.

Market overview

The UBS Global Investors index returned around 7% (ZAR Total Return) for the first quarter of 2014. The best performing regions were North America, UK and Australia with Hong Kong, Japan and Singapore performing the worst. On a global basis Real Estate Investment Trusts (REITs) significantly outperformed property developers with the US 10-year treasury yield compressing again to levels seen in the final quarter of 2013. This move in bond yields was driven largely by a capital flight from emerging markets and a slowdown in US growth in the first quarter. In the US, residential and industrial REITs performed the best while the retail and hotel sectors underperformed.

The UK continued the strong performance from the previous quarter with residential and office REITs performing best. The residential sector was also the best performing sector in Europe. Concerns around the end game for a likely credit bubble China dragged on performance of Asia listed property. Japan property developers declined significantly with the Yen appreciating. The best performing stocks in the benchmark overall were Ashford Hospitality and Beni Stabili SPA. Wharf Holdings Ltd was the worst performing stock.

Portfolio Overview

During the quarter the portfolio only held STANLIB Global Property Fund B units and cash. The STANLIB Global Property Feeder fund had a negative cash balance on average for the quarter from net outflows during the quarter. The South African Rand weakened more than 7% against the US Dollar during the quarter but ended the quarter largely flat. Rand weakness relative to the US Dollar will generally increase portfolio and benchmark returns with all other things remaining equal. In the STANLIB Global Property Fund, the US and Brazil made the biggest contribution to portfolio relative return. The US had positive attribution despite the underweight allocation with good stock selection among residential and office REITs. BR Malls had a strong performance after reporting solid results during the quarter posting double digit growth in rents.

Good stock selection in UK and Germany also contributed to portfolio relative return. Rental growth in the London office market remains robust and we remain overweight the theme. The biggest detractor to portfolio relative return was from holding cash. The portfolio had net cash outflows for the quarter.

Market overview

The global listed property universe returned around 3.9% (ZAR Total Return) for the fourth quarter of 2013. Listed property in both emerging and developed markets underperformed their broader equity markets respectively and emerging market listed property was the worst performing region. The fourth quarter again saw funds flowing back to developed markets and a rotation to equities as the interest rate environment shifted. Emerging market currencies weakened relative to the US Dollar and countries with structural current account deficits were hurt the most. Listed Property investors returned around 3.7% in ZAR for the quarter, slightly underperforming listed property developers. Looking at the returns of Listed Property Investors by region, the best performing regions were the UK, Europe and North America. Hong Kong, Australia and Japan were the worst performing regions.

Portfolio Overview

This fund holds only STANLIB Global Property Fund units and cash. The underlying portfolio underperformed the benchmark during the quarter; the relative performance attributable to the emerging markets allocation and stock selection in the US. The underlying portfolio holds some emerging market listed property stocks with compelling valuations but is largely biased towards REITs in developed markets.

Outlook

The direction of global listed property will continue to be dictated by the level of long-term interest rates and policies of central banks around the world, especially the US and Japan. Modest total returns for global listed property is possible and will be dependent on the battle between fundamental growth and higher interest rates. Improved GDP growth in developed markets should translate into higher occupancy and rental rates to drive earnings growth. However as long-term interest rates rise, cap rates will eventually rise and could offset earnings growth to keep NAVs flat. Cap rates are in general still supported by strong capital inflows to direct property driven by still very low short-term interest rates and this is likely to continue through at least 2014. The rotation to general equities will likely continue in 2014, especially in the US where the spread between REIT dividend yields and S&P 500 dividend yields are still close to record lows. Earnings growth for the year ending 2014 of around 6% is expected for global listed property Investors which currently trade at a discount to NAV of around 7.5%. The implied forward yield for the underlying portfolio is around 3.9%.