Since the U.S. fed hinted to the market in May 2013 that they may begin tapering their asset purchases, markets have been looking ahead to the start of the removal of these extraordinary monetary policy accommodation measures, and with the spectre of higher interest rates in the developed world, Emerging market sovereign bonds, corporate bonds, currencies and listed property were sold off. On the back of this we saw SA listed property continue its sell off through July (-4.2%) and August (-3.5%). After the fed chose not to taper at their meeting in September, we saw listed property rally in the month of September (+6.7%). After reporting a total return of 17.2% up to the end of April 2013 and the subsequent sell off between May and September, SA listed property still managed to deliver inflation beating return of 7.3% for the year to date outperforming both cash(3.8%) and bonds(0.5%). The sell-off in the listed property sector on the back of the rising bond yields has created an opportunity to build up holdings in highly rated stocks that usually appear expensive on a yield relative basis but have strong distribution growth opportunities. As at the end of the 3Q13, the historic yield on SA listed property sector was 6.7% and 7.3% on a forward yield basis . The sector is expected to deliver between 6% to 8% growth over the next few years, making listed property still one of the best asset classes to be exposed to over the long term. We continue to position the fund in the short term to minimise the impact of any potential macro events emanating from the uncertain U.S. Monetary and fiscal situation.

The SA listed property sector saw its first major decline since 2008 in the 2Q13, after Ben Bernanke, the chairman of the U.S. federal reserve indicated that the outlook for economic growth and employment in the U.S. are seen to be improving and that the fed will start slowing the growth of its balance sheet, thus tapering the creation of new money in the system. This sparked a sell off in all emerging market equities and bonds. Given that the listed property sector is correlated with bonds, we saw property stocks give back most of their 2013 gains. As at the end of June the listed property sector still managed to deliver an 8.8% total return better than Equities 2.3% and Bonds -1.4%. The sell-off in the listed property sector on the back of the rising bond yields has created an opportunity to build up holdings in highly rated stocks that usually appear expensive on a yield relative basis but have strong distribution growth opportunities. As at the end of the 2Q13, the historic yield on SA listed property sector was 6.4% and 6.9% on a forward yield basis . The sector is expected to deliver between 6% to 8% growth over the next year. With the continued risks of rising yields in the bond market and the volatile currency coupled with the potential for higher inflation, we remain cautious on the sector in the short term.

The SA listed property sector delivered a total return of 9.1% for the 1Q13 ,outperforming Bonds (1%), Equities (2.5%) and Cash (1.2%). Corporate activity in the sector continued unabated with Redefine withdrawing its offer for Fountainhead whilst acquiring units in fund in the open market, increasing its stake to 45.6%. The Fountainhead independent committee thereafter terminated its engagement with Growthpoint. Hyprop and SYCOM also came to an agreement which will see SYCOM acquire the balance of the undivided shares in Somerset mall which it does not own and then on-sell it to HYPROP for a purchase consideration of R2.3bn. HYPROP will settle the purchase consideration using its 32.8% stake in SYCOM. HYPROP has also agreed to suspend all litigation against SYCOM on condition of this deal being completed. As at the end of the first quarter of 2013, the historic yield on SA listed property sector was 6.3% and 6.5% on a forward yield basis . The sector is expected to deliver between 6% to 7% distribution growth over the next year. However, there are risks building up for the property sector, arising from the vulnerability of the bond market to a weaker currency and the potential for higher inflation in 2013.

The SA listed property sector delivered a total return of 2.75% for the last quarter of 2012 and a 35.88% total return for the full 2012 calendar year, outperforming Bonds (16.02%), Equities (26.68%) and Cash (5.55%). Corporate activity in the sector continued unabated with both Growthpoint and Redefine making an offer for Fountainhead's assets. There were a number of new listings in 2012 , namely Annuity, Ascension and Delta Property Fund. The market capitalisation of the sector also broke through the R200bn mark for the first time. With the addition of South Africa into the Citi Group World government bond index in 2012, yields on long term SA debt strengthened which drove yields on SA listed property lower. As at 31 December 2012, the historic yield on SA listed property sector was 6.56% and 6.98% on a forward yield basis . With the continued labour unrest, mine closures and disruptions, high current account deficit and the potential for higher inflation in 2013, we remain cautious on the sector for 2013.