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Who are the property security managers for bull and bear periods?
by Robert St George on Jul 17, 2014 at 12:33
This week’s Citywire Discovery data reveal which managers fared best through the real-estate collapse.
Rewinding seven years takes us back to the beginnings of the great property crash. The MSCI World Real Estate index’s maximum drawdown occurred between February 2007 and March 2009, with the market plummeting by 71%.
For comparison, the MSCI World’s worst spell did not start until a few months later, in October, ending at the same time after a more modest 57% drop.
Could any manager of property equities have survived that?
This week’s Citywire Discovery data reveal first which managers fared best through that real-estate collapse. Those clustered towards the top of the chart above boast the best risk-adjusted performances over the past seven years.
But while those managers feature high on the chart, they do so centrally rather than towards the right. This signifies that their three-year risk-adjusted returns are less impressive than their seven-year numbers. Or, put differently, the majority of their relative outperformance came in the early part of the period, when the market was crumbling.
In contrast, the managers with the better near-term records fall at the bottom right of the chart, implying that they struggled during the difficult initial phases of the seven-year period but have rebounded strongly over the past three years.
No manager has staked out a position in the important top-right segment of the chart, which would demonstrate superior performance over both seven and three-year timeframes.
One conclusion is that there are no all-weather funds in this sector: there are managers for bear markets and for bull markets, but nobody has dominated both.
The analysis comes from Citywire Discovery, a new desktop system that allows fund buyers and fund groups to access track records of over 9,000 managers tracked by Citywire. It provides unique insights into peer group analysis, performance comparisons and competitor analysis. For more details contact email@example.com
So are we headed for a bull or bear market? The portents are mixed. Bears will note real estate’s terrible 2013, when the MSCI World Real Estate index returned a paltry 3.6% to the broader index’s 27.4% as investors fled what were considered bond proxies amid the taper tantrum.
Real estate’s scope for bouncing back from that weakness should furthermore be constrained by the fact that index already trades on elevated multiples: 23.5 times trailing earnings and 25.1 times forward earnings. The equivalent ratios for the MSCI World index are 18.2 and a far cheaper 15.1.
Yet on a metric that is perhaps more meaningful for property firms, price to book, the MSCI World Real Estate index actually looks better value: 1.6 times versus the MSCI World’s 2.2.
Believers in mean reversion will also take heart from the fact that the property index has only underperformed the MSCI World in four calendar years since 2000. When it did in 2011, it smashed the MSCI World the following year by 13 percentage points. And so far in 2014, real estate is ahead by 11.3% to 6.5%.
Patrick Brophy, Janus Capital
Patrick Brophy has generated the best risk-adjusted performance in this sector over the past seven years through his £100 million Janus Global Real Estate fund. His more recent numbers have been weaker, though, nudging him below average on a three-year view.
That is principally due to 2011, when Brophy lost 16% while his benchmark index declined by 8%. His performance has picked up since then, however, and he beat the benchmark by decent margins in both 2012 and 2013.
Brophy’s greatest underweights at the moment are by sector to retail-focused Reits and by country to Japan, calls which have yet to be rewarded as his fund is slightly behind its benchmark in the year to date. Yet that gap should close as Brophy benefits from his 5.5% overweight to the US, as that country’s equity market continues to scale new heights.
Three-year total return: 23.1% (Average Manager Total Return: 14.4%)
Kay Herr, JP Morgan
The two have broadly similar portfolios, with overweights to the office sector and the Netherlands and underweights to healthcare and Hong Kong.
Herr and Ko’s onshore fund has now achieved top-quartile total returns over five, three and one years. Its small size despite this is perhaps then attributable to its bottom-quartile maximum drawdowns over three and five years.
The team has dampened that volatility over the past year, though, and JPM Global Property Securities now has a top-quartile maximum drawdown for the period.
Three-year total return: 25.2% (Average Manager Total Return: 14.4%)
Steven Buller, Fidelity
One of the few managers to have posted above-average risk-adjusted returns over both seven and three-year periods is Fidelity’s Steven Buller.
Buller, however, ceased managing the £212 million Fidelity Global Property fund late last year. He handed over to Dirk Philippa, originally an equity research analyst with over 15 years’ experience who joined Fidelity in 2004 as head of the group’s European property securities team.
Buller was based in the US, whereas Philippa is stationed in London. As well as promoting Philippa to fund manager, Fidelity recruited two property analysts to support him.
The fund’s performance so far this year has been slightly behind that of the index, but still top quartile in its sector – as it remains over three and five years. Indeed, it has dipped out of the first quartile only on a one-year view, when it has slipped into the third quartile.
Three-year total return: 22.3% (Average Manager Total Return: 14.4%)
Andrew Jackson, Standard Life Investments
Andrew Jackson is mired in the bottom-left corner of the chart due to his poor risk-adjusted performance over both seven and three years.
Over seven years Jackson’s information ratio is minus 1.5, and it is minus 0.3 over three years. That compares with peer-group averages minus 0.3 and minus 0.1 respectively.
However, Jackson’s aggregate performance data mask the diverging fortunes of the two funds he runs in this sector.
The former has been a star, with top-quintile total returns over one, three and five years. Select Property has fared far less well: it languishes at the absolute bottom of the peer group over both five and three years, with the worst maximum drawdown in the sector through those timeframes too.
Three-year total return: 22.5% (Average Manager Total Return: 14.4%)
More about this:
Look up the funds
- Janus Global Real Estate Fd A USD Acc
- JPM Gl Real Est Securities USD A Acc USD
- JPM Global Property Securities A Acc
- Fidelity Global Property Acc
- Standard Life Inv Global REIT A Acc
Look up the fund managers
- Patrick Brophy
- Joseph Marguy
- David Kivell
- Dean Frankel
- Michiel C. te Paske
- Michael Lipsch
- Kay Herr
- Jack Foster
- Jason Ko
- Steven Buller
- Andrew Jackson