Returns are the meat and potatoes of the funds management industry. Generally, the higher the better. APN is different. We do not, in the lingua franca of the profession, aim to ‘shoot the lights out’.
If you want an investment that targets strong, ongoing levels of capital growth and are happy to wear all the attendant risks, the APN AREIT Fund is not for you. If you have a term deposit, however, and lament the anaemic returns, it may be. And if you are seeking an income investment that explicitly seeks to avoid risk, well, please take a seat.
Commercial property is an income investment. Over the long term, total annual returns in Australia have been in the order of 9-10%. Of this, around 6-7% has come from income, the remainder from capital growth.
And yet these figures hide many a disaster. The property sector is awash with stories of collapsed developers. The history of the Australian Real Estate Investment Trust market (AREIT) suggests as much. In years gone by we’ve seen Australian REITs (attempt to) build sports stadiums in London (Fail), buy overseas fund managers (Fail) and purchase huge portfolios of low quality assets in offshore markets with excessive debt (Massive Fail).
When approached sensibly, commercial property can deliver secure, low risk income returns and realistic levels of capital growth over the long term. The real skill in meeting that goal is not in picking the winners but avoiding the losers, and that means spotting when management ego, stupidity and greed are about to strike.
This is where ‘not shooting the lights out’ comes in. APN’s approach is to avoid risky exposures. We much prefer low risk, passive property investments that deliver sustainable income returns from good tenants on long leases overseen by excellent property managers. We do not like over-ambitious, debt-fuelled visions of expansion. This vigilant and conservative approach to property funds management allows us, and you, to sleep well at night.
How does this play out in practice? In strongly rising markets investors are usually happy to take on a bit more risk to achieve additional returns. We are not. We invest in lower risk equities. In unsustainably rising markets that means we frequently underperform. That’s fine by us because when markets are falling we tend to get that under-performance back, plus a little more.
Since inception on January 19, 2009, the APN AREIT Fund’s total annual return has been 17.03% compared with the S&P/ASX300 Property Trust Accumulation Index return of 13.83%. This embodies the epitome of our conservative approach, one that avoids the rollercoaster of returns but delivers above-market performance over the long term.
Of course, the recent ‘rush to yield’ has delivered strong price growth in many of the stocks we own. We’re pleased with our out-performance but focussing on it would be to misunderstand the greater point: APN’s AREIT Fund is laser-focussed on avoiding risk, not shooting the lights out.
For 18 years now we’ve successfully invested in secure, high-quality assets to deliver security of income over the long term. For many fund managers that’s about as boring as it gets. For us, it’s why we exist.