The Yarra Real Assets Securities Fund provides investors with the attractive qualities of resilient earnings built on long-life assets and strong market positions. The Fund invests in 15 – 25 securities, utilizing a style-neutral, long-term approach where stocks are selected based on active insights from the team’s rigorous proprietary research.
Key Contributors
AGL Energy (AGL, underweight) – energy retailer AGL underperformed during the month following the release of its FY23 result. Whilst the result itself was strong, consensus expectations appear to have now caught up with the stronger short-term earnings outlook driven by higher wholesale electricity prices. The company now has a clear long-term plan to transition away from carbon intensive coal generation, however the result highlighted that the speed of transition will be slow and there is considerable uncertainty as to the ultimate earnings base.
NEXTDC (NXT, overweight) – Data centre operator NEXTDC continued to perform strongly during the month after announcing another large step-up in contracted capacity. NXT has signed 25MW of capacity mainly in its M2 (Melbourne) data centre. This brings NXT to a 60MW (70%) increase in contracted capacity in the last three months, highlighting a step change in demand for data centre capacity and the company’s market leading capability.
Charter Hall Long WALE REIT (CLW, underweight) – the real estate company CLW underperformed during the period following the release of FY23 result. Owing to rising cost of debt and valuation de-valuations, the company reported a decline in operating earnings and a statutory loss for FY23. FY24 earnings and dividend guidance declined -7.1% with further rebasing risk from higher debt cost, asset sales and lower payout ratio.
Key Detractors
Goodman Group (GMG, underweight) – industrial real estate manager outperformed following the release of FY23 solid result. Supporting the result was an upbeat assessment of future upside from Goodman’s exposure to land with the capacity to develop out into data centres. Additionally, Goodman flagged the potential for some degree of vertical integration further into data centre operations. This update detracted attention from some of the underlying trends of the business, which have started to slow. While we continue to regard GMG as the global leader in industrial ownership, development and management, we view the upside as priced at current valuation, and remain underweight.
Chorus (CNU, overweight) – the regulated telecommunications utility underperformed during the month after guiding to FY24 earnings 3% below expectations and higher than expected capex. The market extrapolated this as a reduction to the long term cash flow generation potential of the business, however we feel these issues are more relevant to FY24 only.
Mirvac Group (MGR, underweight) – our underweight position in MGR detracted value over the month. Mirvac released its full-year result for FY23, delivering an operating profit of $580m, representing 14.7 cents per stapled security which was in line with revised guidance provided in April 2023. Notwithstanding this in-line update, the company is demonstrating good delivery on its Built-to-rent ambitions, as well as building out its apartment development business into what could be more supportive conditions in CY2024/25, which were the likely drivers of solid share price returns for the month. Within the residential development space, our preference today is with MGR’s peer Stockland, SGP
What is Yarra Australian Real Assets Secs Fund Yarra Australian Real Assets Secs Fund is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Other Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Yarra Australian Real Assets Secs Fund has Assets Under Management of 24.58 M with a management fee of 0.85%, a performance fee of 0 and a buy/sell spread fee of 0.32%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Yarra Australian Real Assets Secs Fund has returned -1.55% in the last month. The previous three years have returned 6.5% annualised and 14.58% each year since inception, which is when the Yarra Australian Real Assets Secs Fund first started.
How is risk measured in this investment product?
There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Yarra Australian Real Assets Secs Fund first started, the Sharpe ratio is 0.46 with an annualised volatility of 14.58%. The maximum drawdown of the investment product in the last 12 months is -12.14% and -30.54% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product?
Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Yarra Australian Real Assets Secs Fund has a 12-month excess return when compared to the Domestic Equity - Other Index of -0.74% and 0.31% since inception.
Does the investment product produce Alpha over its Peers?
Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Yarra Australian Real Assets Secs Fund has produced Alpha over the Domestic Equity - Other Index of -0.17% in the last 12 months and -0.09% since inception.
What are similar investment products?
For a full list of investment products in the Domestic Equity - Other Index category, you can click here for the Peer Investment Report.
What level of diversification will Yarra Australian Real Assets Secs Fund provide?
Yarra Australian Real Assets Secs Fund has a correlation coefficient of 0.89 and a beta of 1.54 when compared to the Domestic Equity - Other Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers?
For a full quantitative report on Yarra Australian Real Assets Secs Fund and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Yarra Australian Real Assets Secs Fund with the ASX Index 200 Index?
For a full quantitative report on Yarra Australian Real Assets Secs Fund compared to the ASX Index 200 Index, you can click here.
Can I sort and compare the Yarra Australian Real Assets Secs Fund to do my own analysis?
To sort and compare the Yarra Australian Real Assets Secs Fund financial metrics, please refer to the table above.
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Comments from SMSF Mates
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Performance Commentary - July 31, 2023 Key Contributors
Aurizon (AZJ, underweight) – the rail freight operator underperformed after releasing a trading update at its investor day which saw earnings expectations lowered by 4% for FY23 and 5% for FY24. Aurizon faces difficulties in transitioning its business model away from coal haulage and we remain concerned that a move back into intermodal haulage will fail to generate sustainable long-term returns on capital.
Vicinity (VCX, overweight) – Australia’s second largest shopping centre owner outperformed during the month despite no major news flow during the period. At a macro level, lower-than-expected inflation reported in the month suggests a peaking of the interest rate cycle, with positive follow-on implications for the Retail sub-sector. Our overweight position continues to be supported by VCX’s asset mix, with over half its asset base exposed to more advantaged segments of retailing (i.e. luxury, DFO outlets and recovering CBD centres), more resilient in-place leases with high occupancy and fewer holdovers. Further, VCX has a strong balance sheet (gearing 25.7% as at Dec-2022) and attractive valuation, with the stock trading at 0.80-times net asset backing and offering a dividend yield above 6%.
Dexus Industrial REIT (DXI, overweight) – the industrial owner outperformed during the period despite no major news flow. That said, industry data continues to be supportive for the industrial and logistics outlook, which makes up 90%+ of DXI’s asset base. In our view, DXI has an appealing mix of industrial assets at this point in the cycle and is well-placed to capture upward market rents upon lease expiry into what remain tight industrial markets. Importantly, DXI’s balance sheet has recently been enhanced through proactive asset sales at values close to book value, setting the trust up well to navigate the period ahead. The valuation is attractive, with the stock trading at 0.80-times net asset backing and offering a dividend yield above 5.5%.
Key Detractors
AGL Energy (AGL, underweight) – the electricity generator and energy retailer outperformed during the period as the market became increasingly comfortable with its near-term earnings outlook, supported by higher wholesale electricity prices. The improved earnings power of the business – confirmed by the company during June with its release of FY23 and FY24 earnings upgrades – will assist AGL in funding its capitalintensive transition away from its high margin, carbon intensive electricity coal generation portfolio.
Port of Napier (NPH, overweight) – the port owner and operator underperformed during the period despite the positive reintroduction of earnings guidance for the full year. FY23 has been heavily impacted by Cyclone Gabrielle in February, however we view this event as being one-off in nature and expect to see a strong earnings recovery in FY24.
Hotel Property Investments (HPI, overweight) – the hotelowning REIT underperformed over the period, with limited company news flow. HPI has attractive leases in-place across its pub assets – with a 10.3 year weighted average lease tenure, 71% of leases referenced to inflation and with its largest tenant being QVC, a Coles joint venture. We expect these assets to perform well through the environment ahead, and the stock remains undervalued in our view (-16% below last stated net asset value, offering a 5.5% dividend yield).
Performance Commentary - June 30, 2023 Key Contributors
HMC Capital (HMC, overweight) – the diversified real estate fund manager outperformed in the period following the recent acquisition – and associated equity raise – of a portfolio of 11 Healthscope anchored healthcare assets. We are attracted to the outlook for the real estate asset mix underpinning HMC’s funds-growth (i.e. hospitals, large-format retail), the company’s operational leverage – the business confirmed in the period it’s expectation of growing to $10bn of funds under management by the end of CY23 – and the attractive relative valuation compared to peer real estate funds management groups including Charter Hall and Centuria.
NEXTDC (NXT, overweight) – following the announcement of the data centre operator’s largest ever individual contract in April and subsequent regional expansion into Malaysia and New Zealand, NXT continued to outperform as the market’s conviction in Artificial Intelligence (AI) applications as a driver of demand growth grew. Most notably, global leading specialist chip maker Nvidia’s commentary around AI driven demand growth supported previous comments made by NXT management.
APA Group (APA, underweight) – the gas transmission pipeline network owner underperformed during the period on limited news flow. Whilst a clearer strategy is emerging under the new CEO, we remain underweight the company given its difficult starting point in approaching the energy transition.
Key Detractors
AGL Energy (AGL, underweight) – the electricity generator and energy retailer outperformed during the period as the market became increasingly comfortable with its near-term earnings outlook, supported by higher wholesale electricity costs. The improved earnings power of the business – confirmed by the company during June with its release of FY23 and FY24 earnings upgrades – will assist AGL in funding its capitalintensive transition away from its high margin, carbon intensive electricity generation.
Aurizon (AZJ, underweight) – our underweight position in Aurizon was a source of underperformance for the period. AZJ outperformed during the quarter from depressed levels following multiple downgrades to FY23 earnings due predominantly to weather interruptions impacting coal haulage volumes. FY24 is shaping up to be a stronger period for earnings as coal haulage volumes recover, Network earnings step up with higher regulated returns and the full period impact of the bulk central acquisition.
Port of Napier (NPH, overweight) – the port owner and operator underperformed during the period after reducing its earnings guidance following Cyclone Gabrielle in February. We view this event as being one-off in nature and expect to see a strong earnings recovery in FY24.
Performance Commentary - May 31, 2023 Key Contributors
HMC Capital (HMC, overweight) – the diversified real estate fund manager outperformed in the period following the recent acquisition – and associated equity raise – of a portfolio of 11 Healthscope anchored healthcare assets. We like the outlook for the real estate asset mix underpinning HMC’s funds-growth (i.e. hospitals, large-format retail), the operational leverage – the business is expected to approach $10bn of funds under management by the end of CY23 – and the attractive relative valuation compared to peer real estate funds management groups including Charter Hall and Centuria.
NEXTDC (NXT, overweight) – following the announcement of its largest ever individual contract in the previous month, the data centre provider continued to outperform as the market’s conviction in Artificial Intelligence (AI) applications as a driver of demand growth grew. Most notably, global leading specialist chip maker Nvidia’s commentary around AI driven demand growth supported previous comments made by NXT management.
Key Detractors
AGL Energy (AGL, underweight) – electricity generator and energy retailer outperformed during the month as the market became increasingly comfortable with its near-term earnings outlook, supported by higher wholesale electricity costs. The improved earnings power of the business will assist AGL in funding its capital-intensive transition away from its high margin carbon intensive electricity generation.
Vicinity (VCX, overweight) – our overweight in the domestic owning shopping mall REIT detracted from performance in May. While the company is tracking well in this second half of FY23 (as per March-quarter trading update), the share price has more recently come under some pressure following increased retailer outlook concerns. This follows the weakening consumer outlook, following recent RBA cash rate hikes to 3.85%, which we expect will continue to pressure the consumer wallet. We believe these concerns are factored into the share price, trading at 0.83 times net asset backing, offering 6.2% dividend yield.
Performance Commentary - April 30, 2023 Key Contributors
APA Group (APA, underweight) – the gas transmission pipeline network owner underperformed during the month where the major incremental news flow was APA missing out on being a preferred counterparty on a renewable energy zone transmission build in NSW. While a clearer strategy is emerging under the new CEO, we remain underweight the stock given the company is at a difficult starting point in approaching the energy transition.
Mirvac (MGR, overweight) – the diversified property group outperformed over the period supported by a March-quarter trading update which re-based investor expectations for FY23, particularly for the residential development division (lot settlement expectations now 2,200 from 2,500 for the 12- months ending 30 June 2023). This increased certainty, coupled with progress around progressing third party capital partners across the business, assisted to drive the improved share price. We remain overweight MGR reflecting its exposure to recovering residential conditions, and its quality set of income producing trust assets.
Key Detractors
Stockland (SGP, underweight) – Australia’s largest land subdivision business, which typically sells approximately 6,000 land lots annually, outperformed over the period which included a trading update reiterating FY23 earnings guidance. Notwithstanding ongoing softness in residential demand for land lots, investors took a more optimistic view to look through current conditions, with some belief that residential conditions will begin to meaningfully improve in the latter part of CY23 as expectations of interest rate cuts into CY24 continue to build. With ongoing elevated shorter-term residential earnings risk, and the stock trading now on fuller valuation metrics (14.2 times forward earnings and offering a 5.8% dividend yield), we retain an underweight position and maintain a preference for peer Mirvac insofar as residential exposure is concerned.
Performance Commentary - March 31, 2023 Key Contributors
APA Group (APA, underweight) – the gas transmission pipeline network owner underperformed during the quarter in which it announced the appointment of its prior CFO, Adam Watson, as the company’s new CEO and reported a result largely in line with expectations. Whilst a clearer strategy is emerging under the new CEO, we remain underweight the stock given the company is at a difficult starting point in approaching the energy transition.
Aurizon (AZJ, underweight) – the freight rail transport company underperformed during the quarter, reporting weaker than expected earnings that were heavily impacted by weather related disruptions. The earnings weakness is also anticipated to carry into the second half of the financial year. The portfolio retains an underweight position, reflecting the difficulties it faces in transitioning its business model away from coal haulage and the associated capital intensity of this process.
Key Detractors
Stockland (SGP, underweight) – Australia’s largest land subdivision business, that typically sells approximately 6,000 land lots annually, outperformed over the period. Notwithstanding ongoing softness in residential demand for land lots, investors took a more optimistic view to look through current conditions, with some belief that residential conditions will begin to improve in the latter part of CY23 as expectations of interest rate cuts into CY24 begin to build. With elevated shorter-term earnings risk, and the stock trading now on fuller valuation metrics of 12.9-times forward earnings and offering a 6.4% dividend yield, we retain an underweight position. We maintain a preference for peer Mirvac insofar as residential exposure is concerned.
Performance Commentary - February 28, 2023 Portfolio review
Key Contributors
Aurizon (AZJ, underweight) – the rail freight operator underperformed during the month after reporting weaker than expected earnings that were heavily impacted by weather related disruptions. The earnings weakness is also anticipated to carry into the second half of the financial year. The portfolio retains an underweight position reflecting the difficulties the company faces in transitioning its business model away from coal haulage, and the associated capital intensity of doing so.
AGL Energy (AGL, underweight) – the Australian energy company underperformed during the month following the release of an earnings result which was below expectations, although we suspect the weakness is largely confined to the current period. Following a tumultuous two years, AGL continues to face significant uncertainties in its outlook, the primary of which is how to protect its earnings base and fund investment in new generation assets as its highly profitable coal generation fleet is gradually retired over the next decade.
Key Detractors
Port of Napier (NPH, overweight) – the port operator underperformed during the month following disruption to it operations from Cyclone Gabriel, although we note no major damage to the port was incurred. We continue to maintain an overweight position with the improvement in global supply chains and shipping reliability positive for NPH and the resumption of cruise line activity, although likely below pre COVID levels, will add high incremental margin revenues.
Ingenia Communities (INA, overweight) – the lifestyle and holiday communities operator fell following an earnings update that highlighted weaker operating conditions than first anticipated by the company. INA now assumes longer construction timeframes and slower settlements as a result of weakening residential conditions. While the balance sheet is sufficiently capitalised to support the operational weakness, the downgrade does highlight the vulnerability in the business model, and the position size has been adjusted accordingly.
Performance Commentary - January 31, 2023 The custom Infrastructure, Utilities and A-REITs Accumulation Index gained +5.7% for the month, taking its 12-month return to +3.4%. The broader ASX300 mirrored, gaining +6.3% for the month, as did global indices (MSCI World Index +7.1%). All A-REIT sub-sectors recorded positive performance during the month, however there was significant performance divergence at the sub-sector and stock level. The Industrial sub-sector returned +14.5%, Diversified +8.5%, Office returned +5.7%, Residential +3.4% and Retail +4.4%. Key Outperforming A-REITs were Unibail (URW, +17.9%), Goodman Group (GMG, +15.0%) and Charter Hall (CHC, +14.9%). Key underperforming A-REITs were largely at the smaller end and included Arena REIT (ARF, -2.6%), Hotel Property Investment (HPI, -1.4%) and Region Group (RGN, -0.4%).
Key Contributors
APA Group (APA, underweight) – the gas pipeline operator underperformed during the month on limited news flow outside the appointment of Adam Watson, the company’s prior CFO, as its new chief executive. We remain underweight the company given its difficult starting point in approaching the energy transition. In our view, APA’s initiatives to shift its business model towards electrification will prove insufficient.
AGL Energy (AGL, underweight) – the energy company underperformed during the month despite an upgrade from competitor Origin Energy in their Energy Markets division. Following a tumultuous two years, AGL continues to face significant uncertainties in its outlook. The company faces significant challenges protecting its earnings base and fund investment in new generation assets as its highly profitable coal generation fleet is gradually retired over the next decade.
Key Detractors
Goodman Group (GMG, underweight) – our underweight position in the industrial property developer detracted from portfolio returns as fund managers such as GMG rallied strongly in January in-line with the large movement (lower) in bond yields. Property fund managers typically act as the longer duration cohort. Results from global peers released during the period also supported aspects of the global logistics outlook (positive rental reversions). We shifted underweight in the industrial property developer in late 2022 to reflect our expectation of slower earnings growth for the business, driven by the implications of the cap rate cycle turning higher for industrial assets and development activity and returns slowing from peak levels. While we believe GMG remains well placed to continue to grow earnings well above sector peers (FY23 EPS guidance is currently for +11% y/y, conservative in our view), we have recalibrated our expectations given an elevated valuation (21 times 12-months forward earnings) and modest 1.5% dividend yield.
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