OneAnswer KiwiSaver Scheme International Property Fund

• It was a good quarter for the international property sector, which benefited from interest rate cuts by many of the world’s largest central banks. The interest-rate-sensitive sector tends to perform well as interest rates fall and bond yields decline.
• At a geographic level, Hong Kong (+25.5%), Canada (+22.5%) and the US (+15.6%) were the best-performing regions, while Japan (-1.6%) was the only major index to end the quarter lower (in local currency terms).
• In the US, the Federal Reserve delivered a larger-than-expected 50-basis-point cut and signalled more interest rate cuts were coming. Meanwhile in Europe, the European Central Bank followed up its June interest rate cut with a second 25-basis-point cut. By the end of the quarter, the yield on the US 10-year government bond was 62 basis points lower at 3.78%, while most government bonds in Europe saw similar moves.
• The fund’s overweight to the strong-performing healthcare sector contributed to quarterly performance – notably its holdings of healthcare REITs (real estate investment trusts) Ventas and Welltower, with shares in the two companies recording double-digit gains. Ventas shares rose more than 20%, hitting a five-year high, after the company reported second-quarter financial results, which included a 7% year-on-year increase in funds from operations, while a rise in net operating income also saw the company lift its forward guidance.
• Meanwhile, Welltower shares rose by about 20%, benefiting from the growing demand for senior housing and other assisted living facilities across North America and the UK. Furthermore, as healthcare costs continue to rise, living facilities for older Americans are becoming an important part of the broader healthcare infrastructure.
• Also contributing to the fund’s relative performance was an underweight position to the poor-performing hotel and resort sector. At a company level, underweight positions to Park Hotels & Resorts, Apple Hospitality REIT and Sunstone Hotel Investors were the main contributors over the quarter, with all companies seeing their share prices decline.
• Elsewhere, underweight positions to Simon Property Group and Prologis also contributed to relative performance. While shares in the two companies rose over the quarter, they both underperformed the market.
• Offsetting some gains was exposure to the residential REIT markets, with holdings of Invitation Homes, Equity Residential and Essex Property Trust the main detractors. Residential REITs struggled against the backdrop of slowing rental growth, which continues to moderate from the significant gains of the past two years.

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.