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Pick of the Reits: where are leading managers invested?
by David Campbell on Mar 25, 2014 at 08:26
A whistlestop global tour of where the sector's leading managers are finding value
Kay Herr – JPM Global Property Securities
Investment performance in the UK, Japan and US has been her biggest driver of recent performance, with stock selection helping in all three markets.
‘Among the largest positive contributors were our overweight positions in Mitsui Fudosan and Safestore Holdings. Investment performance in Finland, Hong Kong and Sweden accounted for the largest negative contribution.
‘We believe the combination of more measured increases in 10-year Treasury yields and higher conviction in economic growth are what the global Reit market needs to post stronger total returns.
‘Global Reits now trade at an 11% discount to their net asset value, and with capital flows to global real estate holding up nicely, that discount may not indicate that “core” property prices need to fall, but, conversely, that Reit prices have over-corrected.’
Kelly Rush – Principal Global Property Securities
Rush attributes much of her recent performance to positive stock selection within the US apartment and mall sectors.
‘The fund was correctly overweight Essex Property Trust and BRE Properties, which returned over 10% and 8% respectively in February. An overweight to Simon Property Group, a high quality mall owner and the largest weight in the index, was also a strong contributor, as was avoidance of a poorly performing mall owner, Macerich.
‘Rounding out the top contributors was the fund’s overweight to the UK, which was a positive performer last month, and underweight to Singapore, one of the worst returning countries. Weighing on excess returns was the fund’s underweight positions to US healthcare and net lease sectors.
‘Both sectors were strong outperformers due to their long lease durations as interest rates in the US fell during the month. The fund has also been hurt by an overweight to US hotels recently, which underperformed due to economic uncertainty.’
Kathy Sandstrom – Old Mutual Global Property Securities
‘Weak selection in Australia/New Zealand and the UK detracted from relative performance. Overweighting Westfield Group, the worst performing security in the Australian/New Zealand space, was the main reason for detraction.
‘Westfield sold off after announcing a major restructuring plan. By contrast, strong security selection in Japan and Europe added to relative performance.
‘In Japan, overweighting Tokyo Tatemono positively contributed to performance. Overweighting Fastighets AB Balder, the best performing security in Europe, has also been beneficial this year.
‘We believe Asia ex-Japan will see currency and stock price weakness as money flow leaves the region. We remain underweight Hong Kong and Singapore as we expect these countries to underperform, owning only those names that have exposure outside of their domestic markets (GLP, CMA and Cheung Kong) or those with extreme valuation support (HKL and Wheelock).
‘In Japan, we are positioned overweight as we believe the momentum behind Abenomics will continue to propel stocks higher.’
Andrew Jackson – SLI Global Reit
‘In terms of direct real estate, we aim to recycle from higher-yielding defensive markets into recovering markets and those expected to benefit from increased economic activity and reflation, such as Japan. Within Europe, we are looking to reduce exposure in Polish logistical property in favour of dominant office and core retail markets in Western and northern Europe.
‘Regarding activity, we have increased our holding in British Land, as we believe it offers an attractive relative valuation, and reduced our holding in Great Portland Estates after recent strong performance.
‘In Europe, we sold Finnish property investment company Sponda, after a meeting with management that suggested restructuring may take longer than expected and there could be more writedowns on property valuations. In the US, we participated in the IPO of Brixmor Property Group, a neighbourhood retail Reit.’
Guy Mountain – Sarasin IE Real Estate Equity
‘Stock selection was strong over the last quarter with the US, Japan and Europe adding significant alpha. The US was the largest positive contributor benefiting from an overweight to malls, offices and diversified Reits and an underweight to healthcare and storage Reits.
‘Hong Kong saw the only significant negative contribution to stock selection due to weakness from Swire Properties.
‘The UK picked up where it left off in the previous quarter. It was the strongest region over the period, benefiting from an improving economic picture and a solid reporting season. Asia ex-Japan was the weakest region, led by Australia which suffered from a significant fall in the Australian dollar and the badly received announcement that the Westfield Group would split its business in two.
‘Hong Kong and Singapore were also weak due to being the most sensitive countries to increasing bond yields.’
Joe Rodriguez – Invesco Global Real Estate Securities
‘Most developed world bond yields continued to rise in the last quarter, while general equity markets posted gains. Listed real estate performance was mixed, led by Europe and Japan.
‘Income-orientated US Reit sectors and Hong Kong and Singapore companies lagged; all tend to be more sensitive to US interest rate prospects. At present, the impact of rising bond yields on real estate investor confidence is being offset by the improvements being seen in rents and occupancy and, as such, high quality real estate investments remain in high demand.
‘There has also been modestly increasing appetite for development risk and lower quality real estate investments. Earnings guidance from listed real estate companies for 2014 generally continues to be optimistic with a variety of both market driven and specific asset management initiatives contributing to growth.’