Australian REIT managers have continued to experience positive momentum, with Australian REITs returning to more conservative and traditional business models. Over the past 12 months, the REIT component of the S&P/ASX 300 Index has experienced stronger returns than the broader constituents of the index whilst also performing strongly relative to global REITs. More managers were able to generate alpha domestically, with the median manager outperforming the benchmark. Many managers have indicated that the sector’s strong return over the past 12 months has increased the number of securities trading at or above fair value. This is likely to provide a challenging environment in the coming year.
Winner: Cromwell Phoenix
Zenith says: Specialist boutique fund manager Phoenix Portfolios was founded in 2006 with the support of ASX-listed Cromwell Property Group. The investment team is led by Stuart Cartledge who has a wealth of experience managing domestic REIT portfolios. Cartledge is supported by analyst Richard Fakhry, who has been with Phoenix for four years and has worked within the REIT sector since 2006. While the investment team is small relative to several peers, it has generated an impressive long-term track record of outperformance.
Cromwell Phoenix offers a truly active, value-biased investment approach, with a relatively large investment universe that includes securities outside the benchmark. These include lower capitalisation stocks and securities displaying property characteristics that are categorised in other sectors, such as infrastructure. Given the strategy’s small-cap bias, the manager has prudently set a low capacity constraint for the strategy, to ensure there is limited impact on alpha potential.
In Zenith’s view the value-orientated investment process and the ability to invest in lower-capitalisation securities provides an enhanced opportunity for sustained outperformance.
Interview:
A disciplined approach to managing capacity and capping funds under management has helped the Cromwell Phoenix Property Securities Fund maximise returns for investors, according to Michael Blake, director of Cromwell Funds Management.
For the year to September 30, 2013, the fund returned 21.6 per cent (after fees) compared to a return of 16.4 per cent for the S&P/ASX 300 A-REIT Accumulation Index. Over the three-year period, the fund returned 21.4 per cent (after fees), outperforming the benchmark by 9.4 per cent annualised.
“This is an index-unaware fund and because it’s a concentrated sector, we cap assets, unlike most of our competitors who charge active management fees but deliver index-like returns,” Blake says.
“We have beaten the index by a significant margin year-on-year since inception.”
The Cromwell Phoenix Property Securities Fund is a joint venture partnership between Cromwell Funds Management and boutique investment manager Phoenix Portfolios, which is run by Stuart Cartledge, Richard Fakhry and Greg Lander.
The fund invests in a diversified portfolio of around 20 Australian listed securities across the retail, residential, commercial, industrial and hotel sectors.
Phoenix’s investment philosophy is that over the medium to long term, superior performance will be achieved by investing in attractively priced securities as determined by fundamental analysis. This analysis culminates in a forecast of future cash flows discounted back into today’s dollars, ensuring a consistent valuation methodology between individual securities.
– Leng Yeow
Finalists:
– APN Property Group
• APN has a differentiated performance target, with a focus on generating a higher yield, rather than outperforming the total return of the benchmark.
• Has generated first-quartile performance since inception with lower volatility than the median manager.
• APN has a number of high-calibre investment personnel and leverages off the top-down views of its highly experienced CIO, Howard Brenchley.
– BT Investment Management
• Applies a very consistent benchmark-aware investment process.
• A highly experienced investment team that can leverage of BTIM’s broader equities team.
• Consistent performance history over the long-term, in line with risk and return
expectations.
