Speaking to InvestorDaily, Resolution Capital portfolio manager Marco Colantonio said his firm takes a relatively conservative approach to investing in global REITs.
The firm has a universe of potential investments containing over 300 stocks, he said.
“We filter it down to about 100 that we like, and then we only invest in 50. So that’s our process – the best stocks in the best markets,” said Mr Colantonio.
When it comes to where Resolution Capital invests its money, the firm looks for supply-constrained markets where it’s “not easy to bring on new construction”, he said.
“We also look for the best managers – local sharpshooters on the ground that have a track record of adding value to their real estate,” said Mr Colantonio.
But most importantly, the REIT in question needs to manage its balance sheet conservatively, he said.
“Too many property companies blow themselves up because they over-leverage during the good times. We find that the better guys are very judicious in the way they recycle their capital,” he said.
A sound company, for example, will spend its time during the boom years redeveloping its properties and leasing them out, said Mr Colantonio.
“They’ll be generally selling down, compared to those who are over exuberant. [The sound companies will be] putting cash in the bank and reducing their leverage to some extent, getting ready for the next downturn,” he said.
“We tend to focus on the guys who have a bit of skin in the game themselves and are local sharpshooters in supply-constrained markets. For long-term investors, it’s the best way to play the real estate investment game,” said Mr Colantonio.
Pinnacle Investment Management director Andrew Chambers, whose firm oversees a stable of boutique fund managers including Resolution Capital, said Mr Colantonio’s firm takes a contrarian approach to its competitors in the global REIT space.
“Most managers are pretty similar in that space – they hug the benchmark. They’ve got massive teams all over the world so the results are fairly poor. This is almost the opposite. It’s a small team with a concentrated portfolio taking high active risk – but they provided a lot of downside protection risk through the GFC,” said Mr Chambers.
The Resolution Capital Global Property Securities Strategy (unhedged) has delivered alpha of 4.9 per cent per annum to December 2013 since its inception in December 2006.
The hedged version of the fund, which is available to retail investors and financial advisers, outperformed by 6.3 per cent per annum since its inception in September 2008, producing a total return of 11.6 per cent per annum.
Resolution Capital has $2.6 billion under management, predominantly in its global REIT strategy.
