Fairtree Global RE Prescient comment - Dec 19 - Fund Manager Comment17 Feb 2020
In 2019, we ended the year up 28.23%, outperforming the index by 632bps. This was on the back of all three bites of the apple working for us. The biggest contributor for the year was stock selec..on, which outperformed by 538bps, followed by alloca..on of 59bps, followed by currency of 34bps. The best performing countries were Singapore non-REITs, the UK and Japan REITs. The best performing sectors in the US were industrial, gaming and residen..al, all of which we were overweight. We are currently undergoing the process of intensively re-evalua..ng our US sector weights.
In December we underperformed the index by 29bps in a slightly rising market, which is only the 2nd month of the year that we underperformed the index in 2019. All three bites of the apple were slightly nega..ve for the month, with the geographical alloca..on nega..ve because of us being significantly underweight Hong Kong, which was the second-best performing country for the month. We were also slightly underweight the best performing market, namely the UK.
The largest posi..ve contributors to performance were a disparate collec..on of stocks in December. The largest posi..ve contributor was City Developments, the Singapore developer, which rose 8% on the back of a pick-up in residen..al sales. The second largest contributor was Big Yellow, the UK self-storage stock, which rose an impressive 13% on the back of con..nued strong fundamentals despite several downgrades. The third largest contributor to performance was Faberge, the Swedish office landlord, which was the largest contributor to posi..ve performance last month. We remain happy that we bought the dip in Oct/Nov and the fundamentals remain solid.
The largest detractor to performance by a substan..al margin was our largest holding, namely Sun Communi..es, which pulled back 8% during the month, but s..ll managed to gain over 50% for the year. We remain commi..ed to this stock given the s..ll robust fundamentals for the manufactured housing sector. The second largest detractor to performance was VEREIT, the US triple net lease stock, which fell 4%, but has already regained most of that in January. The third largest detractor to performance was Rexford Industrial, which similar to Sun Communi..es gave back a li..le of its sterling performance in 2019 during the last month of the year.
Looking forward in the US, we are in a challenging environment where most of the sectors we are keen on fundamentally are at close to record valua..ons, and so hard to overweight, including datacentres and healthcare. Then there are the sectors we like where we hope that valua..ons are not too stretched yet, though s..ll expensive which include residen..al, net lease and industrial. We are underweight retail and lodging despite rela..vely a..rac..ve valua..ons because of weaker fundamentals. We are neutral in Japan where fundamentals are a..rac..ve and valua..ons for the developers are cheap, while tempering our enthusiasm on the back of Japan’s economy and demographics. We have moved to slightly underweight the UK on the back of the recently weaker economic data. We are overweight Europe as the economic data there appears to have bo..omed and fiscal as well as monetary policy are ge..ng even more suppor..ve. We are s..ll underweight Hong Kong where the issues appear implacable to us.
- Commentary is based on USD returns, gross of investment charges, as at close of US markets (16h00 EST) on the last trading day of the month. This may differ from ZAR returns, which is shown net of investment charges, as at 15h00 CAT on the last trading day of the month.