The Absa Property Equity Fund is an active, pragmatic-value fund within the property sector. The Fund’s remarkable historical success is in part attributed to the unconstrained nature of the portfolio, which is benchmark-aware, but not benchmark-cognisant. In practice, this means that the Fund can deviate significantly from the benchmark through the cycle, where opportunities are identified.

Our primary objective is to be invested in the highest quality companies for the long term. The deliberate and active way in which the Fund is managed can result in periods of higher volatility relative to the benchmark, to deliver results that are driven by the robust process, and portfolio manager’s conviction.

The Fund’s 12-month total return of 38.4% to the end of December 2021 was an outperformance of both the listed property index and median manager by 1.4% and 1.9% respectively. For the 12 months ended December 2021, the SA Listed Property Index as a whole delivered a return of 36.9%, outperforming equities (29.2%), bonds (8.4%) and cash (3.8%).

Globally, during the fourth quarter of 2021, there were two dominant themes, namely the continued inflationary pressures across the globe, together with the newest variant of the COVID-19 virus. Both of these factors are likely to continue to be the dominant forces impacting financial markets going into the first quarter of 2022, with the consensus expectations moving towards a more hawkish outlook from central banks throughout 2022, to combat the potential of these inflationary pressures. However, this will need to be balanced against the global growth outlook, with the potential for some slowdown after the strong recovery after the initial impacts of lockdowns across the globe. Positively, the latest variant of the COVID-19 virus has proved to be milder in terms of mortality and hospitalisation rates, which bodes well for the outlook for the global economy and its ability to begin its path to normalisation in 2022.

Domestically, the pandemic is likely to have exacerbated structural growth issues that were already weighing on the weak economic environment before the onset of COVID-19. Positively, there were no further lockdown measures implemented throughout the fourth quarter of 2021, which should be supportive of GDP growth for 2021. However, we expect the local economy to return to its benign growth environment from 2022, with potential headwinds, including lower commodity prices, monetary tightening and higher inflation.

From a sector perspective, we continue to see positive developments across companies within the sector where positive deleveraging actions have strengthened balance sheets. Lower levels of rental relief, together with the collection of deferred rentals and the renewal of expiring debt obligations, have reinforced the liquidity and solvency positions of companies across the sector. We have also seen increasing levels of corporate action across the sector, with the potential for this activity to continue. However, rising vacancies and negative rental reversions will remain a challenge for the remainder of 2022.

The sector has provided attractive relative and absolute performance throughout 2021, despite the recovery in share prices. With a few exceptions, valuations do not appear overly demanding across the sector. However, as the pandemic has evolved and analysing the exposure of individual companies to different sectors of the market, we believe that the potential medium-term returns are becoming more divergent across companies within the sector.

The performance of the Fund over both the short and long term provides investors with an example of the robustness and sustainability of our investment process and the ability for the Fund to deliver attractive total returns for investors through the cycle. We remain confident that our Fund is able to withstand market shocks and is still the correct choice for long-term investors.