Being index unaware

A combination of good risk management, being index unaware and avoiding overleverage has seen the Quay Global Real Estate fund come out on top and take out the Money Management’s Fund Manager of the Year award for the best fund in the Global Property securities space.

The fund, which was launched in July 2014 and aims to provide investors with a total return of the Australian Consumer Price Index +5% per annum over five plus years, has been managed by two portfolio managers, Chris Bedingfield and Justin Blaess, who each have around 20 years of solid experience in real estate, underpinned by their background in investment banking.

The fund’s investment process employs quantitative, qualitative and fundamental research and analysis methodologies, on top of secular themes that can provide tailwinds to a company’s earnings story, the firm said. Its investment strategy is based on four pillars which included clear valuation of replacement costs and the importance of pay-out ratios, balance sheet quality and the level of plough-back returns, a focus on rent-based asset returns as well as avoiding developers and a relatively concentrated portfolio.

The key points best describing the fund’s investment philosophy, according to the company, were a strong focus on delivering real total returns, and not index relative returns, and defining risk as a real permanent loss of purchasing power.

“The other thing that differentiates us is that because we have an index-unaware approach so we are not obliged to hold any stocks just because the index construction says we should. For example, the index might say we should hold 20% in office towers while we do not need to hold office towers at all,” Bedingfield said, who is principal and joint managing director of Quay Global Investors.

“Such an approach also allows us to go into more interesting areas such as data centres.

“The overarching themes here are an index unaware approach and risk management as well as avoiding overleverage. And in this environment we really need active investments.”

This approach has not only provided outperformance of total returns, but a characteristic of returns that has added value in both rising and falling markets, with a notably strong record versus competitors of lower market capture in negative returning periods, the firm said.

Asked why the fund had been nominated for the awards, Bedingfield pointed to the fund’s positive performance and a good risk profile.

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