So when interest rates start increasing....

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Bernie

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Will this be good or bad for the following property unit trust:

Coronation Property Equity Fund (A)

I have been told property is a good hedge against inflation, is this true. I am thinking of buying into this fund now while rates are low, thinking that in the interest rate up cycle, the value of this fund will also increase. Or will an increase in interest rates have a negative effect on rents, thereby making these funds actually perform worse.

How does all this work. I particularly want to look at some sort of property investment to diversify out a bit.

Thoughts?

TIA.
 
Property equity is usually related to the value of property. If the interest rate increases, the market for property shrinks drastically, meaning that fund will perform badly when the interest rate increases...
 
Bernie said:
Will this be good or bad for the following property unit trust:

Coronation Property Equity Fund (A)

I have been told property is a good hedge against inflation, is this true. I am thinking of buying into this fund now while rates are low, thinking that in the interest rate up cycle, the value of this fund will also increase. Or will an increase in interest rates have a negative effect on rents, thereby making these funds actually perform worse.

How does all this work. I particularly want to look at some sort of property investment to diversify out a bit.

Thoughts?

TIA.
Click to expand...

http://www.profiledata.co.za/brokersites/moneyweb/UTtool/F0706.html

That will show you what property companies the fund is invested in as well as the percentages as at 31 Dec 2012.

These companies for example develop and rent out office and shop space. For example Moreleta Square shopping centre is Redefine if I recall the little sign I saw at the entrance.

I do not see how interest rate increase will have much of a impact on these type of fund except if it impacts consumers so that consumer retail spending falls and shops and businesses close and thus there is no rental income on those.

Property fund have performed very well over the past decade and performance is generally very similar across the funds since there is a limited number of companies to invest in.

It is a good diversivier and offers good quarterly income as well. Personally I have 25% of my discresionary non-RA investments in the Coronation Property Equity Fund and 12.5% in a RA in the Stanlib Property Income Fund.

P924s comment seems to be aimed at a residential property question.
 
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supersunbird said:
http://www.profiledata.co.za/brokersites/moneyweb/UTtool/F0706.html

That will show you what property companies the fund is invested in as well as the percentages as at 31 Dec 2012.

These companies for example develop and rent out office and shop space. For example Moreleta Square shopping centre is Redefine if I recall the little sign I saw at the entrance.

I do not see how interest rate increase will have much of a impact on these type of fund except if it impacts consumers so that consumer retail spending falls and shops and businesses close and thus there is no rental income on those.

Property fund have performed very well over the past decade and performance is generally very similar across the funds since there is a limited number of companies to invest in.

It is a good diversivier and offers good quarterly income as well. Personally I have 25% of my discresionary non-RA investments in the Coronation Property Equity Fund and 12.5% in a RA in the Standlib Property Income Fund.

P924s comment seems to be aimed at a residential property question.
Click to expand...

Thanks for the info - makes sense.
What class of investment could one look at that will give value in an increasing interest rate cycle. I am not talking millions of rands here :) but something in the range of R2000pm type investment.

(Yes, I realise the risks and dangers of internet advice - and take that into account - I would still like to see what opinions people have.)
 
Bernie said:
Thanks for the info - makes sense.
What class of investment could one look at that will give value in an increasing interest rate cycle. I am not talking millions of rands here :) but something in the range of R2000pm type investment.

(Yes, I realise the risks and dangers of internet advice - and take that into account - I would still like to see what opinions people have.)
Click to expand...

Not giving advice lol, just some information and telling what I do and maybe an opinion.

Now the asset classes directly affected but interest rates (from what I understand) are moneymarket funds and products like the RSA retail savings bonds and normal and fixed investments accounts at banks and to some extent other bonds.

Personally I do not see a higher interest rate (prime above 10%) developing soon, they still trying to stimulate the economy. Personally I would also not be putting much money into interest related products because the return is just too low at current interest rate levels.

But the question you should be asking and answering first is what is the reason for your investment and the timeframe?
 
Just a point that might to be worth considering. Many people still believe that interest rates will swing back to what they were when they were in high teens. This would be the norm for a developing economy. However our economy acts very similer in some aspects as a developed one aka low growth, low rates, the need for deleveraging. Also south africa may well be on a the brink of a consumer credit crisis with people in all income brackets being in a large amount of debt. If rates had to increase bad debts for banks would start to increase dramtically and people would start becoming insolvent from miners to chartered accountants. So very unlikely that rates will increase dramitcally for atleast the next few years as this would cause even more unrest for ANC.

p.s as someone said above. this is all opinion and not actual advice :)
 
Coronation Property Equity Fund has investment predominately in commercial real estate. Inflation above interest rate results in commercial property valuation going up attributed to increase in material prices, labor prices and rent. You would be better off investing in that fund than putting your money in the bank as interest rates are remaining low for the foreseeable future whereas inflation is estimated at 6.8% for the year and taking into account the economy exiting the recessionary period.
 
Lots of banks are starting to offer good interest rates on fixed deposits > 4 years. Maybe they can see an interest rate hike on the cards soon? I can...
 
I'm not sure about soon. SARB has said it will not intervene with regards to strengthening the Rand using interest rates
 
Bernie said:
Will this be good or bad for the following property unit trust:

Coronation Property Equity Fund (A)

I have been told property is a good hedge against inflation, is this true. I am thinking of buying into this fund now while rates are low, thinking that in the interest rate up cycle, the value of this fund will also increase. Or will an increase in interest rates have a negative effect on rents, thereby making these funds actually perform worse.

How does all this work. I particularly want to look at some sort of property investment to diversify out a bit.

Thoughts?

TIA.
Click to expand...

I havent read any of the other replies but here is my 5 zim dollars worth:

In any well balanced investment portfolio, you should have a mix of asset classes. This mix will vary from person to person depending on their appetite or tollerance for risk.

An invetment of this nature is to be invested for a number of years (7 to 10 years or longer) Equities and property equity do not usually perform well when interest rates rise and this is why one needs to have the correct balance and be invested in cash as well as property and euqity.

In the long run, equity has outperformed inflation as has property equity while cash remains under pressure from the effect of inflation on after tax net returns.

What you need to consier most f all is that an investment can be like a marraige. It's great when it works out but not o uch when the tough times come along. If you are contemplating this, do it for the better or wrose scenario and remain invested (especially if the market value of the unit trust fund drops drastically if interest rates rise). Often the best thing to do is to buy units when they are on the way down or at the bottom of the cycle. This will have the effect of reducing the average cost per unit and when they begin to increase in value (as they usually do) your profit margin will be higher.

If you have debt though, look to pay that off if possible, beginning with the most expensive debt first. (Not usually your mortgage but your credit card debt. Mortgage may be the biggest but it's usually the cheapest form of money you can borrow. i.e. its at the lowest interest rate.)
 
bromster said:
Lots of banks are starting to offer good interest rates on fixed deposits > 4 years. Maybe they can see an interest rate hike on the cards soon? I can...
Click to expand...

Well I'd say its almost guaranteed that rates will increase in 4 years. But thats not the reason they are pricing up on fixed deposits. The reason is the new liquidity and funding requirements that became law in December and are being phased in over the next 5 or 6 years.
 
There are 2 new ratios that banks will have to meet with regards to liquidity and funding, namely the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR). The minimum LCR is being phased in from 1 Jan 2015 and the minimum NSFR is effective from 1 Jan 2018. Both of these ratios are positively impacted by retail term deposits. There is a ton of news about it if you google it and I have linked the published regulations if you want more detail.

http://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/5442/04%20Regulations%20part%204.pdf
 
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