It’s been more than two years since real estate prices collapsed, and investing in global real estate today remains a very tricky business. Volatility and varying performance in the world’s markets and sectors are just two factors that make it challenging.
AdvisorOne spoke with Patrick Brophy (left), portfolio manager of the Janus Global Real Estate Fund (JERAX), about where he sees opportunities and how he structures the fund’s portfolio to best take advantage of short-, medium- and long-term trends.
The fund – launched in November 2007 – has had a pretty stellar rebound from the crisis bottom but is still below the ’07 peak, along with other funds and the major market indexes.
On a three-year basis, it has outperformed its peers, according to Morningstar, and is in the top 1% of funds in its category for this time period. The four-star fund’s three-year annualized performance is 5.32%, and its improved 22.01% for the past 12 months.
Top holdings for the Janus portfolio include Health Care REIT, Hang Lung Properties, Macerich, ProLogis and HCP.
Q. Can you share with us your overall outlook for the real-estate sector worldwide?
A. Our outlook is for more volatility and more macro-driven markets. This is hardly ideal for research-intensive, bottom-up stock pickers like us, but it reminds us of why we’re so partial to real estate, or more specifically commercial real estate.
For one, it’s a relatively inefficient asset class when it comes to valuation, meaning there are almost always opportunities.
Secondly, because “all real estate is local,” there are usually markets bucking the trend, and having a global mandate allows us to be sufficiently nimble to go to where we are finding suitable opportunities, and, equally important, steer clear of markets that are stretched or headed for a bad stage in the cycle. And finally, we believe well-managed, conservatively financed, strategically located hard assets with contractual cash flows (often inflation-indexed) are excellent vehicles for wealth preservation, especially in uncertain times.
Q. What’s your view on the difference between the performance of real-estate holdings in the more developed economies and in emerging markets?
A. We suspect that we will continue to confront a bifurcated investment universe, punctuated by ongoing de-leveraging, a muted recovery and limited growth prospects in the developed world; and a wide range of development and acquisition opportunities in fast-growing emerging markets, which benefit from strong demographic trends.
But no matter the geography, we stick to the key tenants of our long-established investment philosophy: focused businesses, disciplined allocation of capital, compelling valuation, high barrier-to-entry markets, attractive/irreplaceable real estate assets, development/re-development expertise and quality management.
Q. What impact do higher oil prices and higher commodity prices overall have on your real-estate outlook and investments?