Fund managers in the sector have had to work hard to rebuild investor faith but despite strong returns over the past 12 months, Morningstar said it's unrealistic to expect returns to be maintained at the same pace going forward.
However, “The sector should benefit from record low interest rates across the developed world and continuing investor demand for yield,” the ratings house stated in its sector wrap-up for Australian and global listed property funds, which covered 20 Australian and 12 global strategies.
“The Australian and global listed property sectors have both experienced meaningful outflows over the past three years, as investors have shunned risk assets in favour of instruments such as term deposits,” Morningstar stated.
“If interest rates fall further, however, investors may reassess their stance and begin to move back towards higher-yielding assets such as listed property.”
Morningstar said the fundamentals for both global and domestic listed property “appear to be holding up”, with most regions, including Australia, looking to be trading at a small premium to net asset value.
“Given ongoing investor demand for yield, listed property should continue to possess appeal. Australia in particular offers a healthy yield that now looks sustainable, and there are reasonable dividend growth expectations across all regions over the next few years,” Morningstar stated.
Of the 32 managers, four received the highest gold rating - BlackRock Indexed Australian Listed Property, BT Property Investment, Vanguard Property Securities Index, and UBS Clarion Global Property Securities.
A further four Australian and one global strategy received a silver rating, and six were rated as bronze. One fund from Zenith was downgraded to ‘under review’ after it changed the underlying manager, the Legg Mason Australian Listed Property was downgraded to ‘not rateable’ and the remainder were classed as neutral.