ASSET CLASSES
Why preference shares are back
It’s an asset class that’s often ignored. But with property stocks under pressure, preference shares are back in vogue
It’s no secret that listed property has comfortably outperformed general equities, cash and bonds over the past 10 years, delivering an impressive average 14%/year total return. At the same time, the SA listed property index increased significantly in size: from 20-odd counters with a combined market cap of less than R80bn in 2007 to a market cap of about R500bn, with about 50 stocks. Some analysts now believe it’s time to rotate money out of property into other asset classes — the thinking being that the stellar trajectory of property stocks just can’t continue. Leon Allison, Peregrine Capital property analyst and co-portfolio manager of the Peregrine Capital Flexible Yield H4 QI Hedge Fund, says he is struggling to see value in property shares, particularly in SA-focused real estate investment trusts (Reits). As a result, he is now overweight in a little understood asset class: preference shares. "SA Reits are trading at an average yield of around 7%, which we believe is expensive...
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