The £906.5m fund, which is run by EII Capital Management’ managing director Mr Rehlaender for Schroders, has delivered a return of 8 per cent in the three months to the end of April, compared with the 12.6 per cent rise on its benchmark index, according to its latest factsheet.
Mr Rehlaender said Japanese Reits had soared by up to 60 per cent in the first quarter because the country’s government committed itself to buying them up as part of its mammoth stimulus package announced last month.
The Schroders fund has suffered due to its lack of exposure to the sector, which Mr Rehlaender said was because it was “not very liquid and the quality was less than we usually go for”.
The manager has instead bought into Japanese development companies, which he said had begun to outperform Reits in recent weeks after the government stopped buying them and prices plummeted.
“The Japanese market has started to come back to us because Reits have fallen back while the quality development companies that we have exposure to are up,” he said.
“The Reits are still very expensive while the development companies are trading below net asset value.”
Mr Rehlaender is also sticking by his decision to hold a very overweight position in Hong Kong and China, at 15.1 per cent compared with the benchmark of 9.4 per cent.
The manager said the region had lagged the wider market in 2013 and it had hurt performance, but that the market was extremely undervalued and could be due for a turnaround.
“There are property companies in Hong Kong and China that are on discounts of up to 60 per cent compared to their net asset value and they have no debt and great opportunities ahead of them,” he said.
The market has lagged due to regulatory problems and worries about China’s slowing growth rate, but Mr Rehlaender added that “all signs point to growth picking up in the second half of the year”.
Mr Rehlaender has also been increasing his exposure to Australia recently, although he is still underweight relative to the index because he does not own Westfield, the multinational shopping centre giant that dominates the index.
“In Australia, the economy has been slowing down, partly due to the slowdown in China shrinking demand for its exports,” said Mr Rehlaender.
“But we like that the Australian central bank is finally getting it by cutting their interest rates, so we have been adding to Australia recently.”
