FMOTY 2023: Quay Global Real Estate Fund sees fifth win

The Quay Global Real Estate Fund (Unhedged) has won the award for Global Property Securities Fund of the Year at this year’s Money Management Fund Manager of the Year awards in Sydney on 22 June.

Speaking to Money Management, portfolio manager and principal, Justin Blaess, discussed the tailwinds for the property sector and where he is seeing opportunities.

This is the fifth consecutive win for the fund, which was launched nine years ago and is managed by Blaess and Chris Bedingfield, as it has scooped the category at every awards held since 2018.

“We believe we are recognised for our differentiation and consistency in approach, which has delivered superior returns over most timeframes. When we established the strategy nine years ago, the key was to minimise the risk of permanent capital loss but also deliver an attractive return, and we haven’t wavered from this.

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“We focus on finding investees that offer long-term sustainable returns, construct a portfolio that is adequately diversified but not over-diversified, and manage risk principally through investing in high quality cash flows.

“The result is a portfolio that is very different to many of our peers, and that has delivered strong absolute and relative returns with attractive risk statistics. Our conviction-based approach also leads to low turnover, averaging approximately 20% since inception.”

However, Blaess acknowledged it has not been an easy time for property funds lately as rising real bond yields have had a negative impact on valuations and it is taking time for the benefits of CPI linkages in leases and rising construction costs to feed through. Supply and construction has also “ground to a halt” as a result of the higher inflation and interest rates.

“With such a sharp transition away from ultra-low interest rates and at a rate not expected 18 months ago, there have been few places to hide,” he said.

As well as this, the global real estate sector is still feeling the knock-on effects from the COVID-19 pandemic and remote working.

“Whether it be weak leasing demand in the office sector as the reversal of the work from home trend takes longer than expected; the implication of tighter credit markets on balance sheets; or, conversely, the surge in instore retail sales as people discover the store again, there has been very little time for complacency.”

However, Blaess was optimistic about the future and said the firm has observed robust fundamentals and cautiously optimistic outlooks. He specifically sees opportunities in sectors that are assisted by long-term secular tailwinds that are unaffected by the economic cycle which includes the ageing population and senior housing in the US and Canada.

“Real estate has attributes desirable in periods of slower economic growth – contractual income (rent) and higher EBIT margins, which is what gives it its defensive characteristics, and REITs generally own the highest quality real estate. There is no doubt the valuation cycle will continue to play out and there will be headlines of falling property values. However, investors need to remember that this has already been anticipated in the listed sector, as witnessed by negative short-term returns.”

For Quay, which focuses solely on real estate and is a boutique of Bennelong Funds Management, Blaess said it will remain dedicated to this asset class.

“All our focus and resources have and will continue to be focused on ensuring we can continue to provide to our investors the best possible return opportunities in the listed global real estate universe. And if we can do that, then hopefully we might be lucky enough to win the same award this time next year!”