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Listed real estate and infrastructure funds celebrated a moment in the final quarter of 2023 as falling long-term interest rates boosted the ‘bond proxy’ asset classes, according to the latest Melville Jessup Weaver (MJW) investment survey.
All funds in the MJW global listed property universe reported double-digit returns for the three months to the end of December with infrastructure managers not far behind.
The Westpac-owned BT international listed real estate fund topped the quarter in the MJW table, returning 15.6 per cent while the median manager in the, admittedly small, cohort of six strategies was up 13.3 per cent.
Similarly, the best-performing global listed infrastructure fund – run by First Sentier Investors – rose 13.2 per cent for the three-month period compared to the average result of 10.6 per cent for the seven-strong cohort in the MJW sector for the asset class.
Both listed real estate and infrastructure outperformed the broader global equities benchmark for the December quarter but the sub-genres were still behind over the year.
The Dow Jones Brookfield Global Infrastructure index was up only 2.9 per cent for the 12-month period as the listed property gauge rose 9.3 per cent: by contrast, the MSCI World benchmark returned more than 23 per cent over the year on both a hedged and unhedged basis.
Ben Trollip, MJW principal and author of the December quarter survey, says in the report that the ‘bond proxy’ asset classes reap some benefits “when interest rates are low or falling because of their yield-heavy characteristics”.
“They serve as substitutes for bonds, with their pseudo-fixed income characteristics due to their fairly certain dividend yields,” Trollip says.
Non-pseudo fixed income sectors – local and offshore – also caught the tail-wind of falling interest rates in the December quarter after copping big losses through 2022 and the early part of last year.
“The headline Bloomberg Global Aggregate Index ended the year up a reasonable 6.6%, mostly thanks to the December quarter’s rise of 5.7%,” the MJW report says. “A similar story can be told for New Zealand bonds, where the Bloomberg NZBond Composite Index rose 6% in the December quarter alone. Without this rise, the index would have been more or less flat for the year.”
Dimensional Fund Advisors (DFA) clocked the best quarterly performance in the MJW ‘core’ global bond selection of 7 per cent against the median 6.2 per cent: the Trust Investments ESG NZ Bond fund headed the local core fixed income manager group with a 7.1 per cent return.
But while fixed income staged an impressive last-minute finale in 2023, the year belonged to global equities – driven by US markets – that delivered the 23 per cent plus index returns to NZ investors.
“All told, the headline US share market index, the S&P 500, rose 11.2% in the December quarter, locking in a gain of almost 25% for the calendar year,” the MJW report says. “The tech-heavy NASDAQ rose 13.6% over the quarter, for a stunning 43% gain over the year. Growth stocks, with their distant cash flows, were bigger beneficiaries of falling interest rate expectations.”
In home territory, the flagship NZX 50 benchmark was up 4.3 per cent for the final quarter and 3.5 per cent over the 2023 calendar year.
After a tough 2022, however, all Australasian share managers tracked by MJW landed in the black over the quarterly and annual periods (bar the Kernel Wealth small and mid cap fund, which was down -1.3 per cent over the 12 months to December 2021).
The pan-asset recovery in 2023 flowed through to the KiwiSaver market where all but a handful of funds in the MJW subset returned to the black over all periods covered in the report (maximum 10 years).
Only a few negative signs float in the MJW KiwiSaver table including the ASB Positive Impact Fund (-1.2 per cent over the three years to December 31) and a clutch of conservative products – also over the three-year period – as 2022 washes out of the system.
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