Manulife Asset Management may reduce exposure to Singapore and Japan and raise allocations to Australia in its global shariah-compliant real estate investment trust (REIT) fund, according to the fund’s manager.
Joseph Marguy, managing director of Manulife Asset Management and manager of the Shariah Global REIT Fund, says Japan and Singapore REITs have "performed very well over the last few months", partly due to increased rental income.
"We are probably going to slightly reduce those positions, and take some profits and invest into Australia [REITs]," he says in an interview with Asia Asset Management.
According to Mr. Marguy, aggressive rate cuts by Australia’s central bank have made Australian REIT yields attractive.
"Also, valuations of Australian REITs are looking very attractive relative to the other regions,” he adds.
He is also keeping close tabs on developments in Hong Kong amid ongoing social unrest in the city, and Brexit in the UK.
He says the Hong Kong market has underperformed because of the unrest and if signs of calm return, it could be an opportunity for the fund to raise exposure to the city.
"I don't foresee that happening in the near term, but we are actively looking at it, and we know the conditions can change very rapidly,” he says.
Mr. Marguy says the UK’s property and REIT markets have been weak, primarily because of Brexit-related uncertainties.
"We do expect the economic conditions to be weak even if there's a deal. But once we have more clarity on the deal, it could present an opportunity to invest more there," he says.
According to Mr. Marguy, global institutional investors are becoming more interested in shariah-compliant products, in part because they are now considered to be socially responsible investment vehicles and demand for funds that conform to environmental, social and governance criteria is rising.
“So, shariah-compliant funds actually mirror very closely to those type of investments," he says.
He says investors’ hunt for yield is also driving demand for shariah REITs, which have generally outperformed conventional property trusts because of their more defensive nature.
He says shariah compliant REITs are less risky because of a strict rule limiting debt, so they can weather downturns better than some higher-leveraged trusts.
“So, I think investors are getting a better quality and growth profile REIT," he adds.
Shariah-compliant REITs must have a debt-to-asset ratio of less than 33%, whereas the ratio for conventional REITs ranges from 45% to 60% depending on the jurisdiction.
Shariah REITs also cannot have more than 5% of their net income be derived from businesses deemed to be non-halal, including alcohol and gaming.
But there are still many assets that shariah REITs can invest in such as data centres, logistics warehouses and telecommunication towers, which are growth areas because of rising internet use and e-commerce.
"Another growth area we are seeing is healthcare-related REITs, due to the rising ageing population globally," Mr. Marguy says.
Manulife Asset Management, the asset management arm of Canadian insurer Manulife Financial Corporation, had US$396 billion of assets under management as of end-June 2019.