KEY POINTS:
Fund manager AMP Capital Investors' forecast of bumper returns for local commercial property this year has continued to play out with those assets the standout performer in its portfolio during the three months to June.
In what AMP head of investment strategy Leo Krippner said was a mixed quarterly performance, New Zealand property returned 11.5 per cent against 7.8 per cent during the March quarter.
That has lifted returns for AMP Property Portfolio, which invests directly in about 50 commercial properties to a whopping 35.7 per cent in the year to June, according to preliminary numbers.
"We did expect that New Zealand property would be a good performer," said Krippner, citing rental yields of about 8 per cent per annum and capital appreciation in line with inflation at around 2.5 per cent.
"The combination of those two things made us think the per annum returns would be in double digits at least for the next few years, but we've been pleasantly surprised by the degree of continued capital appreciation and it's that that's led to the overall outstanding return."
There was also evidence that the lift to valuations in the listed property sector resulting from the new portfolio investment entity regime which comes into effect in October had, as expected, flowed through into valuations for directly held property.
However, with returns that large, "it's very obvious that it's an appreciation in the value of the buildings and that can't last forever".
"But what we still like about property at the moment, aside from that capital appreciation potential, is the fact that property has still got reasonably attractive yields."
AMP, New Zealand's largest private sector fund manager with almost $13 billion under management, is expecting average returns of 10.9 per cent per annum from commercial property over the next 10 years.
But while commercial property still looked attractive, Krippner said the residential sector looked stretched.
Meanwhile, with an 11.4 per cent return over the June quarter, global shares were also a strong performer for AMP, but only when hedged against the effects of the rising local currency.
Unhedged global equities returned a negative 0.9 per cent.
The worst performing asset classes were hedged global property and hedged global bonds.
Although they recovered from the market jitters resulting from the Chinese sharemarket losses earlier this year local shares returned only 3.1 per cent over the quarter and immediate prospects looked somewhat lacklustre.
While the global outlook looked good, with growth expected to continue at a trend rate of about 3 per cent and moderate inflation, in New Zealand the market was likely to be constrained by a "softish" growth outlook, persistent inflation and relatively high interest rates for some time to come.
However, AMP still saw potential to benefit from further takeover activity in the local market.
AMP's high risk balanced fund returned 4.1 per cent over the June quarter and 6.8 per cent over the year to date.
Its medium risk fund returned 4.2 per cent and 6.5 per cent, and its low risk fund returned 2.2 per cent and 4 per cent.
Over the same periods, cash returned 2 per cent and 3.9 per cent.
Winners and losers
AMP Capital Investors' June quarter returns* by asset class:
NZ property 11.5%
Global shares (hedged) 11.4%
NZ shares 3.1%
Cash 2%
NZ bonds 0.1%
Global shares (unhedged) -0.9%
Global bonds (hedged) -2.8%
Global properties (hedged) -4.5%
* Preliminary numbers
