Kay Herr, who manages the fund alongside Jason Ko and client portfolio manager Michael Hudgins, explains that the fund provides investors with broad market exposure to real estate markets, investing in real estate investment trusts (Reits) and real estate securities, adding that investors should look to hold the fund for “five to 10 years”.
The fund’s process is based on selecting stocks from the bottom up, with a focus on the valuations of real estate securities relative to both their cashflow and underlaying real estate.
Ms Herr says: “We are in regular email/conference calls with the analysts around the globe looking for investment opportunities in stocks where we see a valuation that is achievable on the basis of their cashflow and underlying real estate.
“We have on-the-ground research analysts in New York, London, Tokyo and Singapore and they are speaking the same investment language. Historically – since inception – the majority of the alpha and performance comes from the bottom up stock selection.”
The fund currently has a 16.3 per cent exposure to Japan’s real estate market, but the managers admit that a lack of exposure to the Nippon Building fund was the largest stock-level detractor in the first quarter of 2013. “[This] partially offset the positive contributions from other Japanese stocks. Investment performance in Japan, Hong Kong and Canada accounted for the largest positive contributions to relative returns, with stock selection and allocation proving beneficial in all three markets,” the managers note.
Mr Hudgins adds that monetary policy around the globe is throwing up interesting opportunities. “What this does is keep bonds low and keeps debt pots very attractive , which is good for Reits because they can use that capital to create value,” he says. “Valuations perhaps look expensive when compared with equities, but they are fair when compared with the value of their real estate, and they look cheap versus bonds.”
Since inception in September 2006, the fund has returned 6.68 per cent against the IMA Property sector average loss of 0.68 per cent, according to FE Analytics. This, Ms Kerr says, is a direct result of the bottom-up style adopted by the team.
On a five-year basis, which captures the latter part of the financial crisis, the fund outperformed its peer group by 2.32 percentage points and its three-year performance figures show it more than doubling the returns from the sector.