Guy Barnard, Co-Head of Global Property Equities, and Nicolas Scherf, portfolio manager, provide an introduction to the Pan European Property Equities Strategy, the benefits of investing in listed real estate and why the team believes their approach is unique.
- What does the Janus Henderson Pan European Property Equities Strategy offer to investors?
- What are the benefits of including property equities in a balanced portfolio?
- What makes your approach unique?
- Aiming to invest in the ‘winners of tomorrow’
I'm Guy Barnard, Co-Head of Global Property Equities at Janus Henderson. And my name is Nicolas Scherf, I'm a European portfolio manager for property equities at Janus Henderson Investors.
What does the Janus Henderson Pan European Property Equities Strategy offer to investors?
Our strategy offers investors an actively managed way of accessing European property through liquid real estate securities.
Our investment universe consists of around 130 different REITs and other property companies with a free float market cap in excess of EUR500 billion.1
These companies invest across a range of different European countries and across many different types of underlying real estate assets and in total these companies control around 7% percent of the total European property market, which we observe is quite a low number in relation to other global developed markets such as the US where REITs control around 15% of the property sector.2
In our view this offers us as active managers and investors in this sector an attractive runway for future growth as we look into the years ahead.
What are the benefits of including property equities in a balanced portfolio?
We actually want to highlight three key reasons why we think property equities should be part of a balanced long-term portfolio.
First is income. Property equities offer investors a high and attractive dividend yield compared to other classes of equities and fixed income and also REITs have shown that over time they can grow their income and the dividend ahead of inflation.
If you look at the last 20 years the sector has returned about 9%. Two thirds of that return has been generated by dividend income. 3
Secondly, diversification. REITs provide diversification benefits in a way that there's a low correlation to other asset classes. They also provide good diversification across countries and across different real asset classes within the sector.
Unlike other forms of real estate investments REITs come with the added benefit of daily trading liquidity and the shares with that daily trading liquidity in place may imply shorter term increased volatility. But investors have generally been rewarded with higher long-term returns. 4
What makes your approach unique?
The strategy is managed by Nicolas and myself with the support of a dedicated analyst in London. And we're part of a wider team dedicated to the asset class of eight in total.
We really do believe that active management in this sector can make a significant difference to the returns that investors generate over the medium and long term and as a team we really take that active management to heart in terms of the way that we run our portfolios.
So we look to structure high conviction portfolios really reflecting the best bottom-up ideas that we as a team find in our investment universe on an ongoing basis.
Aiming to invest in the ‘winners of tomorrow’
Specifically we're focused on areas where we see that technological change, demographic change or an increased focus on sustainability that we see are creating ‘winners of tomorrow.’
So we're investing in companies that we think can benefit from those structural trends, grow their income, grow rental income, and thereby create shareholder value going forward.
Our focus on these key structural trends has led us to significantly favour some property types over others.
For example, we are overweight in areas like industrial and logistics, which are benefiting from e-commerce. We like areas like student accommodation, we like affordable rental residential as well as other niche areas such as healthcare and storage.
In our view these are the sectors that are going to be the ‘winners’ over the next five years and we want to have meaningful exposure there. And on the flip side be underweight in those sectors facing structural headwinds such as retail today.
So I think through this very active management approach that we have, we can look to benefit from the trends that we think are going to drive returns in the years ahead.
Past performance is not a guide to future performance.
1 Source: European Real Estate Association (EPRA) as at 31 December 2019.
2 Source: EPRA, global real estate total markets as at 31 December 2019.
3 Source: EPRA, Monthly Statistical Bulletin January 2020. FTSE EPRA NAREIT Europe Developed Total Return Index in euro terms.
4 Source: Bollinger, Mitchell A, and Pagliari, Joseph Jr, Journal of Portfolio Management Special Real Estate Issue 2019; study period 2000 to 2017.
Liquid/liquidity: the ability to buy or sell a particular security or asset in the market. Assets that can be easily traded in the market (without causing a major price move) are referred to as ‘liquid’.
High conviction: a strategy where a portfolio holds a select number of stocks that represent the portfolio manager’s best opportunities for outperformance. Fewer holdings mean each stock has a larger impact on under/outperformance. A high conviction approach can also lead to higher volatility/risk.
Bottom-up: the analysis of individual securities, in order to identify the best opportunities in a sector, industry or country/region. Factors analysed include information that contributes to the valuation of a security, such as a company’s earnings or the evaluation of its management team, and the sector the company operates in.
Volatility: the rate and extent at which the price of a portfolio, security or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. It is used as a measure of the riskiness of an investment.
Dividend yield: a stock's (or other securities) annual dividend payments to shareholders, expressed as a percentage of the stock's current price.