Don’t hug the index

Oksana Patron

27 September 2022

Having a concentrated portfolio and being different from index has seen the Charter Hall Maxim Property Securities Fund win the 2022 Financial Newswire-SQM Research Fund Manager of the Year Equity Australia Real Estate category.

Winston Sammut, head of listed securities at Charter Hall, has said that the fund’s investment philosophy hinges on the fact that it aims to generate returns on investments better than the index.

“To do that we have to be different from the index and we are different in that sense that we have a concentrated portfolio with a small number of stocks, maximum of 20. And if we don’t like a stock, we don’t have to have exposure to it so we only hold stocks that we like.”

“It’s been very difficult 12 months because the interest rates starting to rise, there was Covid and the war in Ukraine and there has been a lot of volatility which obviously makes things a little bit more difficult, but we stuck to our process and we stuck to our objectives effectively and we think we have done reasonably well for our investors.”

Asked about the fund’s main differentiator, Sammut said that, against to many of the fund’s competitors, his fund was negative on discretionary retail, and had zero exposure to Scentre Group and Vicinity Centres.

Summut said that the common mistake he had seen in that space was that many funds were ‘hugging the index’ as opposed to adding value through the stock selection.

At the same time, the Charter Hall Maxim Property Securities fund’s preferred stocks were those with exposure to rural properties, retirements living, but not necessarily aged care, and childcare centres.

“The point I am trying to make is if you want to beat the index, you have to be different and from my point of view [it helps] having a concentrated portfolio.”

The fund is a high conviction, actively managed fund and gives investors exposure to a mix of quality Australian real estate investment trusts (A-REITs) that own assets across the retail, residential, commercial, industrial and real estate related social infrastructure sectors, with the aim to outperform the S&P/ASX 300 A-REIT Accumulation Index by 1.5% per annum over rolling three-year periods.

The fund utilises a disciplined investment process combing in-depth fundamental research with disciplined portfolio construction and risk controls with the aim of adding consistent value over time.

Its basic premise of the investment philosophy is that “there is a close relationship between the real estate market cycle and the economic cycle.”