Fairtree Global Listed Real Estate Fund Q1 2026 commentary
The year started off on a good note for property stocks, but turned less favourable as tensions between the US and the Middle East brewed, with the fund underperforming the index by 48bps. In absolute terms, the Fund was up 55bps, while the index was up 103bps. The underperformance was mostly driven by the third bite of the apple, stock selection, down 75bps. The first and second bites of the apple, region and sector allocation, increased performance by 25bps. We held 7% cash, higher than usual, as political uncertainty made us cautious, resulting in a positive 6bps performance. However, the Developed Property Index did outperform the S&P 500, which fell 5%, which we believe is likely to continue given the valuation discrepancies. We reduced our Asian overweight as the stocks rose significantly last year, leading to higher valuations, and we have increased our European and UK exposure to benefit from attractive valuations and projected growth. We remain underweight the US as fundamentals for certain sectors and valuations are less attractive.
Regional performance for the quarter was led by developers. The top-performing region for the quarter was Hong Kong, with developers up 18% and REITs up 2%, and we are still overweight Hong Kong developers. Singapore, the US and Japan were tied in second place. The Singapore developers were up 4% with their REITs down 6%, and we remain underweight given less attractive valuations and the overhang of government policy risk. We are most underweight the US, but they have recently outperformed given the US’s safe-haven status during the ongoing conflict in the Middle East. We have reduced our weighting in Japan after the developers rose to the point of being fully valued, and we are now underweight the region. The weakest performer for the quarter was Australia, down 14%, and we remain underweight given rising interest rates and persistent inflation. The UK was down 12%, but we are overweight because of specific attractive stock opportunities. Germany is experiencing weakness, with low GDP growth, the housing market being under pressure, and EU stocks falling 5%. Spain expects high growth, which makes stock picking and timing in this region important.
The US sector performance for the quarter was led by data centres, up 23%, as AI demand soared while supply cannot keep up because of power supply and construction availability. The second-best performer for the quarter was net leases, up 9%, where we are overweight, as this defensive sector continues to drive external growth through accretive transactions. Third best was shopping centres, up 7%, which is our largest overweight as we prefer their valuations and consistent cashflow and valuations relative to malls. Healthcare was fourth, up 5%, as senior housing stocks continue driving the sector higher. The weakest sector for the quarter was offices, down 18%, as office job growth splutters. Residential was the second-worst sector, down 8%, where we are most underweight given weak affordability. We have no exposure to malls, which were down 1%. We are overweight industrials despite fluctuating risks as fundamentals are solid, and the sector was up 2% during the quarter.
The top-performing stocks in our portfolio for Q1 were the US data centre stocks, with Equinix up 28% and Digital Realty up 16%. The third top performer was Japanese developer, Mitsubishi Estate, up 11%, as office demand in Tokyo remains strong. The weakest-performing sector was the US office, and BXP fell 23%, but we maintain our neutral position given quality assets and management with very attractive valuations. UK student housing stock Unite Group was the second worst, down 20%, as student demand weakened and hampered rental growth. The third worst was US SoCal Industrial stock Rexford, down 15%, and we have sold our position in this stock as vacancy continues to grow while management strategy vacillates.
The year started off well for our fund, but the impact of the Middle East conflict challenged property stocks as the quarter ended. We are currently reviewing our US underweight and preferred sectors. We expect interest rate rises to cause some pressure on property stocks, and therefore prefer stocks with strong balance sheets, low debt and good management.
*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.
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Disclaimer
Fairtree Asset Management (Pty) Ltd is an authorised financial services provider (FSP 25917). Collective Investment Schemes in Securities (CIS) should be considered as medium-to-long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance.
CISs are traded at the ruling price and can engage in scrip lending and borrowing. A schedule of fees, charges and maximum commissions is available on request from the Manager. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. Performance has been calculated using net NAV to NAV numbers with income reinvested. The performance for each period shown reflects the return for investors who have been fully invested for that period. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestments and dividend withholding tax. Full performance calculations are available from the manager on request. There is no guarantee in respect of capital or returns in a portfolio. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.fairtree.com.
Highest rolling one-year return 35.23% (Benchmark: 42.12%) and lowest rolling one-year return -26.73% (Benchmark: -25.09%) (information to 31 March 2026). The fund has returned an annualised return of 3.34% since inception (April 2020) (benchmark annualised return of 6.62% since inception). The fund’s annualised performance over 1-year is 4.27% (Benchmark: 8.97%). The fund’s annualised performance over 3-years is 2.85% (Benchmark: 6.74%). Fund returns disclosed are annualised returns net of investment management fees and performance fees. Annualised return is weighted average compound growth rate over the period measured. Fund investment risk indicator level: aggressive. Full performance calculations are available from the manager on request. Annualised performance: Annualised performance shows longer term performance rescaled to a 1-year period. Annualised performance is the average return per year over the period. Actual annual figures are available to the investor on request. Highest & Lowest return: The highest and lowest returns for any 1 year over the period since inception have been shown. NAV: The net asset value represents the assets of a Fund less its liabilities.
This document is confidential and issued for the information of the addressee and clients of Fairtree Asset Management only. It is subject to copyright and may not be reproduced in whole or in part without the written permission of Fairtree Asset Management. The information, opinions and recommendations contained herein are and must be construed solely as statements of opinion and not statements of fact. No warranty expressed or implied, as to the accuracy, timeliness, completeness, fitness for any particular purpose of any such recommendation or information is given or made by the Manager in any form or manner whatsoever. Each recommendation or opinion must be weighed solely as one factor in any investment or other decision made by or on behalf of any user of the information contained herein, and such user must accordingly make its own study and evaluation of each strategy/security that it may consider purchasing, holding or selling and should appoint its own investment or financial or other advisers to assist the user in reaching any decision. The Manager will accept no responsibility of whatsoever nature in respect of the use of any statement, opinion, recommendation, or information contained in this document. This document is for information purposes only and does not constitute advice or a solicitation for funds.
The Fairtree Global Listed Real Estate Fund is registered and approved under sections 65 of the Collective Investment Schemes Control Act 45 of 2002.
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