Fairtree Global Listed Real Estate Fund Q3 2025 Commentary

The third quarter ended with the fund outperforming the benchmark by 67bps as it rose 474bps while the benchmark rose 407bps. This was driven entirely by the third bite of the apple, stock selection, which increased performance by 244bps, while the first and second bites of the apple, region and sector allocation, detracted from performance to the tune of 161bps. We held an average of 5% cash during the quarter, which had a negative 15bps effect on performance. Global real estate stocks underperformed most South African and other global equity markets, given their lower beta and defensive characteristics during the market rally. Our overweight positions in Asia performed well during the quarter, leading to outperformance, although our overweights in the UK/Europe detracted from that somewhat. The quarter ended on a positive note with the Fed cutting interest rates and the market pricing in further cuts, which should be positive for REITs.

Regional performance for the quarter was led by Japan, with the developers up 17% and REITs up 7% on the back of deep negative real interest rates given Japan’s low interest rates and high inflation. Singapore was in second place, with developers up 13% and REITs up 7%, where we remain overweight due to strong physical market fundamentals and attractive stock valuations. HK was in third place, with the developers up 9%, although the REITs were down 2% as HIBOR increased. We remain overweight developers as property transaction volume picks up and valuations remain attractive. The weakest-performing region was the UK, down 9%, which hurt our relative performance as we remain overweight on the back of attractive valuations and likely BOE rate cuts going forward. The second-worst performer was the EU, down 4%, where we are also overweight for similar reasons as the UK. The US was up only 4%, marginally underperforming the global index. The US is by far our largest underweight on the back of weak fundamentals for several sectors, and stretched valuations across the board.

US sector performance for the quarter was led by malls, up 17%, where we have no exposure due to a preference for shopping centres within the retail space. Healthcare was the second-best performer, up 14%, where we closed our underweight position during the quarter despite full valuations, given the strong multi-year growth likely for senior housing. Industrial was the third top performer, up 6%, where we are neutral as falling supply is offset by tariff uncertainty. Offices and net leases were also up 6%. At the opposite end of the spectrum, the weakest-performing sector was residential, down 5%, which is our largest underweight on the back of affordability concerns and low transaction volumes. Self-storage was the second-worst performer, down 3%, where we also have a large underweight as fundamentals remain challenged. Data centres were down 1%, where we are broadly neutral as strong demand is offset by record supply, and power supply muddies our analysis.

The top-performing stocks in our portfolio for 3Q25 were all developers (as opposed to REITs). New World Development in HK was up 38%, City Developments in Singapore was up 32%, and Mitsubishi Estate from Japan was up 23%. In contrast, the worst-performing stocks were all from the UK. Office stock Derwent London was down 17%, student housing stock Unite Group was down 16%, and residential stock Grainger was down 13%. During the quarter, we sold our entire stake in Grainger, and we acquired the position in Unite Group on its weakness, as we believe in the long-term potential of UK student housing.

We remain bullish on property stocks relative to the rest of the equity market, although we are only expecting total returns of 5-10% over the next 12 months. Fundamentals in the US are challenging for several sectors, and we are significantly underweight this region as a result. We prefer Asia, where, despite strong performance YTD, valuations remain attractive and fundamentals are improving. We will continue to search for property sectors that have good fundamentals at a reasonable price, and remain positively disposed towards stocks within those sectors that have strong balance sheets, quality management, and attractive assets.

*Commentary is based on USD returns, Net of investment charges, as at the close of US markets (16h00 EST) on the last trading day of the month. This may differ from ZAR returns, which are shown net of investment charges, as at 15h00 CAT on the last trading day of the month.