NZ Fund Managers

[Snoopy]

The numbers game gives the win to Solly (post 102). My detective work gives investors a good idea of how the winning strategy was played out (posts 102 and 104). So we have a result! Solly and his Harbour Asset Management Real Estate Fund is the place to put your real estate capital!

Or is there more to consider?

There are a few more NZ Real Estate Funds out there. I don't disown the 'index plus' approach to setting up these real estate funds. But I did wonder if there is anyone else out there running an NZ Property Fund based on a different strategy. The main problem with the three protagonists that I have looked at in detail is that together they account for around 30% of the total listed NZ real estate market (around 10% each). When you are that big, it is difficult to deviate too far from 'index plus'. I wondered if there were any smaller operators out there, pursuing a different strategy?

I came across 'Mint Asset Management'
https://www.mintasset.co.nz/our-fund...property-fund/

Despite the name, the 'Australasian' property fund is heavily weighted towards NZ's 'big eight' listings (totalling 91.86% of the fund). But at just over $28m, it is less than one third the size of any of the other three protagonists examined so far. Yet if you click on the latest fund update and compare the fund composition with the NZ Real Estate index constituent rating (post 99), you will see that 'Mint Asset Management' is 'index plus' as well. For the record the Mint Management version of 'index plus' means a 2 percentage point underweight position in both KPG and VHP, with IPL also down 1.5 percentage points. PCT is up by a percentage point as is SPG. 'Rogue declarations' outside of the core eight are Charter Hall (real estate) and NEXTDC (data-centres) in Australia. The annual management fee at Mint was 0.98%

As an aside, Solly's previous employer was Mint. So you could say that in moving to Harbour Asset Management, this was for Solly merely an exercise in 'continuing to do everything he had been doing'. That means, the way I see things, it does come down to which of the 'index+' market players I see as best. Currently I hold none of the big eight underlying investments from which our respective fund managers make their lunch. So I feel I am in a position to judge the merit of the eight protagonists from a value perspective today without any 'anchor baggage'.

The most important thing to consider is how these property funds have positioned themselves for the future, not to get hung up on past success or under-performance. For that you need a vision of where DARP (Demand at a reasonable price) will come from.

My top preferred NZ property sector investments are:

1/ Property for Industry: Big box industrial and logistics (sectors I like) at a good yield from quality underlying earnings (a higher percentage of imputation credits earned than most). A good track record of 'sticking to their knitting'.
2/ Stride Property Group: Tarnished with their inability to sell down their office portfolio with the failed 'Fabric' float, Stride's long term aim is to be a 'management ticket clipper'. Others put up the equity to actually own the properties under management. It is such a profitable plan, that buying out profitable management contracts held by outsiders was lauded as the thing to do by many of the top eight market players over the last few years. Stride is not a full PIE which might put some property investors off. But for me tax matters are a consideration, not an over-ruling command for where I put my investment dollars.
3/ Argosy: Trying to cover all categories of property investing (office, industrial, large format retail). But the with tilt towards big box industrial (53% of the total portfolio) and some retail (9%) that attracts me. Leaving aside Kiwi Property, which has become more of a property developer and will likely reduce dividends soon to fund their 'live work and shop' at one site new development vision, Argosy gives investors the highest dividend yield.

Almost making my top 3 was Investore, as I like the recessionary proof big box grocery sector. Countdown (Inverstore's biggest tenant) does play 'hard ball' though, with their rent contracts. I got worried when Investore announces rental lease deals at rates below the cost of bank funding! I need to look into margins at Investore a bit further. Kiwi Property is a 'roll the dice' investment with lots of development and execution risk. Goodman Property Trust a great company in a good sector, but very fully valued. Ditto for Vital Healthcare. Precinct are the big player in office towers, which I see as a sector coming under pressure in the near term - with government departments set to shrink - and in the long term with greater acceptance of 'working from home.

And the fund winner is.......

SNOOPY

[Snoopy]

And the fund winner is.......

Listed Property Fund Manager Comparison	Fund Annual Fee	Property for Industry holding Increment	Stride Property Group holding Increment	Argosy Property holding Increment	Sum Total Percentage Point deviation from Index	Absolute Total Percentage Point deviation from Index
Free Float Index Holding for Top Eight (Reference)	Not Applicable	11.6% (base)	7.47% (base)	9.23% (base)	0.0pp	0.0pp
1/ ANZ Oneanswer (Incremental Holding to Reference)	1.10%	+3.7pp	+5.6pp	-7.2pp	+2.1pp	16.5pp
2/ Harbour Asset Management (Incremental Holding to Reference)	0.78%	+0.85pp	-1.5pp	+2.0pp	+1.5pp	4.5pp
3/ Smartshares (Incremental Holding to Reference)	0.54%	+1.4pp	+0.85pp	+1.1pp	+3.4pp	3.4pp

I have created the above table to get an inkling of where our three protagonists might be going with my three preferred unit holdings, rather than the return they gave their unit holders in the financial year just gone. This is all based around my 'future vision' in post 105. Readers may have their own future vision across the different property sectors that is different to mine. That in turn may make them look at a fund manager from their own different perspective (a perfectly legitimate thing to do) and so come up with a different 'best' manager. Nevertheless, my own judgement is what follows.

In the twelve months just gone under scrutiny, the 'best performance', was put in by Solly's Harbour Asset Management Team. This was helped by various 'one offs' like Solly's big push into logistics via GMT (which in actuality meant he just caught up to where the other fund market players were already) and a one off boost from a 32% capital appreciation (resulting in 0.66 percentage points being added over 12 months to the fund total return) from a minnow holding in Infratil. I sincerely doubt that either of these effects will be able to be repeated in the current financial year. Some say we might see a boost this year in the recovery of Harbour's Real Estate fund holdings in the three leading listed retirement villages. I think there could be a 2% total portfolio boost from such a sub sector recovery. But whether this will all occur over the 30-06-2023 to 30-06-2024 period alone is doubtful. Consequently I believe that after Solly's relatively favourable twelve months of portfolio management on behalf of investors, the current ensuing twelve months should see Solly's Harbour Asset Real Estate performance 'revert to the mean'.

My instinct in picking a winner is to go for ANZ Oneanswer, because they are the most overweight in the two property owning companies that fit into my own 'growth vision' going forwards. Interpreting from the table above, the largest potential gain will come from the 5.6 percentage point overweight holding above the 4.74% base index shareholding rate (this means that to start the year, the percentage of the portfolio in Stride is 5.6%+4.7% = a 10.3% of the ANZ Oneanswer Real Estate total portfolio stake. Nevertheless, this pumped up 10.3% stake is only 10.3% of a much larger 100% portfolio. And the 'incremental piece' is only 5.6% of a much larger 100% portfolio. Finally, any out-performance will rest on just what kind of capital gain (or otherwise) applies to that slender 5.6% of excess sized Stride stake. What I am saying here is that even with those out sized portfolio sizing decisions made by ANZ Oneanswer, a 20% advance in the share price of Stride (a quite extreme favourable performance) will only increase the value of the whole Oneanswer Real Estate fund by just over a single percentage point above fund index returns. This shows up our most independently thinking manager (ANZ Oneanswer) to still be hugging the real estate investment index remarkably closely. On a slightly different tack, I would be very interested to know why ANZ Onesaver are so negative on Argosy properties, while the other two protagonists are resoundingly positive. Don't get me wrong. If your own research says you should take a stand aside from the index, and minimise your exposure to Argosy (in this instance), then I am all for a fund manager doing just that. But I remain puzzled by ANZ Oneanswer's extremely negative views on a company with such a strong dividend yield and yet a perfectly acceptable lease rollover profile. I also have to bear in mind that the ANZ Oneanswer management charge the most of the three fund manager protagonists here for managing the portfolio of listed entities on the investor's behalf.

Finally we come to Smartshares, which, is touted as nothing more than a mimic for the NZ real estate listed index, Despite this, through a quirk of fund management policy ('the cap') , I find Smartshares overweight in all three of the property shares that I like best. This fund 'cap' prevents this fund holding more than 17.5% of its invested capital in any one listed share. That, as a result, I should find all three of my preferred investments overweight in what is ostensibly an index fund blows me away. The fact that this fund has the lowest management fees seals the deal . The Smartshares NZ Real estate fund (NPF) is my winner. Yet I still retain respect for the other two fund manager protagonists. When all managers play the 'index plus' share selection game you can almost be sure that it will be a 'photo finish' to decide the winner!

SNOOPY