Aurora Funds Management is conducting a capital raising for its listed Australian real estate investment trust (A-REIT) and has targeted New Zealand investors looking for good yield with downside protection.
Aurora, a Sydney-based hedge fund manager which pioneered the ETP (exchange traded product) market in 2005, has been working with the New Zealand brokers, including Forsyth Barr, to distribute the offering, known as the Aurora Property Buy-Write Income Trust.
For New Zealand investors, the offering has two points of special appeal: it qualifies as a ‘fair dividend rate’ (FDR) investment, which is tax advantaged, and it pays no Australian franking credits which otherwise distort the relative investor profiles between domestic and foreign.
ETPs are listed entities which, unlike listed investment companies, are open ended and have a structure that keeps the quoted price at the same level as the underlying assets. There are only a handful listed on the ASX so far, but a lot of Australian fund managers are examining how to access the new market. Aurora already has three others, in the defensive high-income space.
The Aurora fund focuses on A-REITs with a high proportion of rent-paying income, rather than more lumpy property development income, which allows it to pay a minimum of 2 per cent a quarter (8 per cent a year) yield.
The investment strategy, which takes away a little of the upside, but provides some protection on the downside is produced by a combination of call and puts options which add to the rental return for investors.
In the most recent market correction, for instance, the fund returned 1 per cent for the quarter to the end of August versus minus 3 per cent for the benchmark ASX 200 Property Accumulation Index.
Simon Lindsay, the managing director of Aurora, said the unique liquidity mechanism, high yield and downside protection combine ideally for the retiree market in New Zealand and also investors looking for some diversification among their defensive assets.
He said they could apply or redeem units daily off market, through the PDS (product disclosure document) at the net asset value. Alternatively, investors can trade the units on the ASX, but they were usually more likely to receive a better price off market, he said.
ETPs in Australia, which are basically actively managed exchange traded funds (ETFs), attracted a lot of investor attention this year when Magellan Financial Group listed a version its successful global equities fund – the second equities ETP (Aurora’s Dividend Income Trust was first) – and took in A$50 million (NZ$56 million) of new money on the first day.
* Greg Bright is publisher of Investor Strategy News (Australia)