OneAnswer KiwiSaver Scheme International Property Fund

• It was a mixed start to the year for international listed property and investors were seen to pare back expectations for interest rate cuts in the US. At the start of the year, many believed the Federal Reserve could begin cutting interest rates as early as March. However, slowing progress on the inflation front saw expectations for rate cuts being shifted out to later this year. It was a similar story in other regions, with central banks around the world generally leaving interest rates on hold. Against this backdrop, we saw bond yields rise, which typically can hamper the performance of listed property investments.
• At a local currency level, Japan was the top-performing listed property market, helped by the performance of its broader share market. The Australian market was another strong performer given weaker-than-expected inflation data, which brought forward expectations of rate cuts there. US property was down slightly, as were European and UK markets, where the economic backdrop continued to worsen. Meanwhile, Hong Kong was the worst-performing market, as it continued to underperform on weak sentiment and negative headlines.
  
• Contributing positively to the fund’s relative outperformance were its holdings in Japanese real estate developers, Mitsui Fudosan and Mitsubishi Estate. Shares in both of these companies were up 42% in local currency terms, as they benefitted from the strong performance of the region’s share market – which saw the Nikkei 225 share index hit a new 34-year high.
  
• A number of the fund’s long-standing retail holdings also contributed to the fund’s outperformance. It included shopping centre companies Scentre Group, Federal Realty Investment Trust and Unibail-Rodamco-Westfield. Scentre delivered record sales of $28.4bn for its 42 Westfield centres in Australia and New Zealand, aided by a 6.7% increase in foot traffic across its centres and coupled with strong demand for retail space and over 99% occupancy across its portfolio.
  
• Some of the fund’s other long-term holdings also did well, including US home builder Invitation Homes, and healthcare infrastructure company Welltower. Elsewhere, Digital Realty Trust and Equinix were strong performers, both of which operate in the data centre sector. The data centre sector again stood out and exhibited strength, with demand poised to be amplified by continued growth in artificial intelligence (AI).
  
• A couple of the bigger detractors from relative performance were a nil holding in Simon Property Group, a US real estate company that owns a portfolio of shopping, dining and entertainment assets, and the fund’s holding in Hong Kong company Link Real Estate Investment Trust. Simon Property saw its shares up on the back of a strong earnings report for the year to 31 December 2023, while Link, which owns a diverse portfolio of retail, car parking, offices and logistics assets in Hong Kong, saw its shares down given the underperformance of the region’s market. However, these did little to detract from the fund’s overall outperformance over the quarter.
  

The fund invests mainly in international listed property assets. Investments may include:

• Companies, funds or trusts that invest in property and are listed or are soon to be listed
  
• Cash and cash equivalents.

This chart shows the mix of assets that the fund generally intends to invest in – 100% listed property.

See the fund's actual investment mix on page 3 of the fund update.