NZ Fund Managers

[Snoopy]

Adding up the savings of holding underweight positions in the biggest losers of the real estate investment index, coupled with the winnings from picking a couple of quasi property companies that sit out side the index, the total portfolio advantage to 'Harbour Asset Management' stretches out as follows:
(0.15%+0.24%+0.21%)+(0.66%+0.3%)= 1.56%

However, the actual 'winning margin' for Harbour over the Smartshares NPF fund was: 2.39%--0.77% = 3.16%.. Why the difference?

After creating post 103, I have a reassessment to make.

Shane Solly in April 2022 from a review article.
https://www.harbourasset.co.nz/resea...-real-returns/

"REIT investment universe is more diversified than was the case even five years ago with REITS now including investments in sectors such as logistics, healthcare and education which have structural tail winds."

One year on, how did the Harbour Real Estate Fund look in the shadow of this vision by Solly? The largest logistic company property managers in the portfolio are GMT (Harbour holding -1%ge point below index rating) and PFI (Harbour holding +1%ge point above index rating). That adds up to the fund having a neutral rating on logistics property. The only healthcare property company, Vital, is underweight by 1%ge point compared to the index rating. Furthermore, Harbour have not declared any real estate assets in the education sector, although with none listed in NZ, we can't blame Solly and his team for that.

Nevertheless it is extremely disappointing that Solly has not followed through on his vision and is leaving the 'property sectors with structural tail winds' to be exploited by others.

It looks like I owe Solly and his team at least a partial apology. Solly did indeed boost his fund's holding in the largest logistics player, GMT, after all in the ensuing year following his comment quoted above. GMT went from 14% to 19% of the portfolio in fact. What threw me was that at a 19% portfolio weighting (and without the benefit of portfolio accumulation hindsight that I now have), the GMT holding was barely up to index rating level, - possibly a bit below (before I had assumed was a constant state). So even though Solly's move to buy a lot more GMT was in hindsight 'a good strategy followed through', it looks like Mr Market got there ahead of him. He is a smart guy that 'Mr Market'!

Right, back to the 'Why the difference' discussion.

In my post 98, I considered that Harbour's holding in GMT was almost the same during the year under examination. But if Harbour had managed to increase the quantum of their GMT holding to 25% above the 30-06-2022 total at prices of around $2 per share (quite possible), then -indicatively- the Harbour portfolio gain over the 12 months would have increased by a an incremental further amount:

For GMT: 'extra capital acquired' was 19.05%-14.30% = 4.75 percentage points or 4.75/14.30 = 33% more than the assumed steady state investment total.
0.33 x 14.30% x an 11.0 (see post 101) capital value percentage gain = 0.52 percentage points of additional portfolio capital gained.

Other transient adjustments to the Harbour Asset Real Estate portfolio during the year under examination were less meaningful (refer post 103).
The already noticed under-weighting of Stride (post 98) looks like it was an active strategy during the year. So too the clinical sell down of the associated company Investore stake. I wonder what it is that Solly does not like about this duo?

Looking at the remainder of the 'big eight' (refer to post 98):
a/ Precinct Properties continues a slow march upwards towards index rating.
b/ Property for Industry maintains a slightly higher than index rating.
c/ Kiwi Property Group maintains a slightly higher than index rating.
d/ Vital Healthcare Property is held at a solid percentage point below where an index holding should be. This is interesting because Solly has identified the healthcare property sector as one with 'tailwinds'. Perhaps even with those tailwinds, Solly considers VHP relatively expensive?
e/ Argosy continues to be held at a level which is a solid two percentage point above where an 'index hugging manager' would sit.

That last overweight holding is interesting, because Argosy offers one of the highest dividend yields in our core of eight, with a gross dividend yield of 8.29%. This is effectively a full two percentage points higher than an index tracking portfolio, as derived in the link below:
https://www.sharetrader.co.nz/showth...=1#post1022016

So Harbour Asset Management through their 'real estate fund' gains extra income above the index gauge on their (10.56-8.56)/8.56 = 23% higher percentage point over-rating of ARG shares, multiplied by their contribution to portfolio income as follows:

0.23 x (8.29-6.33) x 12.2% = 0.05 incremental percentage point return.

Taking the gains over and above index holding identified in post 102, and adding the gains in this post we get:
(0.15%+0.24%+0.21%)+(0.66%+0.3%)+(0.52+0.05)= 2.13%

O.K., we are still a percentage point or so behind the 3,16% achieved. But we are working with incomplete information. Sometimes fund managers do a bit of trading during the year (notice that some of the holdings in post 103 go up and down a bit during a 12 month holding period). It could be that Solly has 'topped up his profits' from trading around the edges of the shares his portfolio holds.

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?

SNOOPY