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OPM property doubles sector average returns with alternative strategy

OPM Fund Management is using fixed income and property-related structured products as an alternative to bricks and mortar funds in reducing volatility in its property fund, which has produced double the returns of the sector average since March.

OPM property normally combines bricks and mortar funds with global Reits to achieve higher growth than bricks & mortar funds with lower volatility than global Reits. But over the last 18 months, the company has felt exposure to bricks & mortar funds would be detrimental to its fund in terms of volatility and performance because markets are volatile and property values are low.

In these circumstance, OPM is investing the bulk of the portfolio in global Reits, which has helped to produce a 44 per cent return since March compared with the sector average of 22 per cent.

Fixed income and property-related reverse convertibles are being used to dampen volatility over the short term. Reverse convertibles are structured products that pay a high coupon which can be locked in over short periods of time. They behave like equities as markets rise while acting like bonds when markets fall.

OPM property currently comprises 30 per cent in global Reits funds, 50 per cent in direct property-related equities including Reits, 10 per cent in fixed income, 5 per cent in reverse convertibles and the remainder in cash.

Fund manager Tony Yousefian says: “Around 90 per cent of the fund’s performance is derived from the performance of global Reits and 10 per cent is derived from the alternative assets

“Going forward, we will be looking to introduce bricks & mortar holdings. It is likely that exposure will be increased over the next 12 to 18 months. We will be looking at the bigger players where we can get a full breakdown of how the funds are investing.”

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