Phoenix Real Estate Securities Fund
[January/February 2006]
Last year, the newly named Phoenix Real Estate Securities Fund became one of the few funds ever to reach its 10th anniversary in the Lipper Real Estate category. Only 14 percent, or 37 out of 254, of active real estate funds tracked by Lipper were 10 years old or older as of 2005. Senior Vice President and Senior Portfolio Manager Michael Schatt and Senior Vice President and Portfolio Manager Geoffrey P. Dybas stress that while the name has changed, clients can rest assured that the fund's strategy has remained constant.
"Our focus statement that we use when talking about the fund is that it's the same portfolio management, the same philosophy, the same style and the same process working together to create alpha over a period of time," Schatt says.
Both fund managers have been with the fund since its beginning as the Phoenix-Duff & Phelps Real Estate Securities Fund. Since that time, the two have honed certain ingredients to managing a successful fund. For example, a key word both Schatt and Dybas use when characterizing their investment strategy is "consistency."
"Adhering to a style has been a key factor for our alpha creation. The discipline behind style adherence seems much easier to maintain if one is a part of a diversified investment advisor with a focus on long-term performance. In addition, having the internal support to close our doors to new flows at a point in the future will help preserve our alpha creation," Dybas says.
Schatt adds, "one of the reasons investors remain interested in our fund is they can look in a rearview mirror and see a consistent record. We've seen there's been chasing of the du jour style, but we think it's important to have a consistent style, particularly in the REIT sector."
To select REITs for investment, the Phoenix team starts with a macroeconomic evaluation of the 13 property sub-sectors they cover, followed by a fundamental analysis that involves a market-cap screen of appreciation potential, efficient use of capital and dividend growth. These screens help to create a target list of REITs. "In terms of earnings growth drivers, we're always looking at three legs on a stool—internal growth, external growth and the balance sheets of the companies," Dybas says.
Equity REITs comprise the vast majority of the fund's holdings, with an occasional allocation to real estate operating companies. In the fund's almost 11-year history, Dybas says only two holdings have not been REITs.
Schatt explains that the Phoenix team of fund managers set both long and short-term goals for performance. "We favor REIT managements with a demonstrated ability to use their portfolio of assets to create value. We think our investors are being paid dividends to wait for the value creation process to occur and be reflected in appreciated share prices," Schatt says.
"The quarterly measurements we track include tests of our GARP style, such as forward year multiples and growth rates of our portfolio versus the NAREIT Equity REIT Index, as well as a comparison of our portfolio's dividend growth and dividend coverage versus the index," Dybas adds.
| Top Five Holdings:
|
| Company |
% of Portfolio |
| Simon Property Group |
6.94% |
| General Growth Properties, Inc. |
5.53% |
| ProLogis |
5.17% |
| Vornado Realty Trust |
4.75% |
| Developers Diversified Realty Corp. |
4.36% |
| Data as of Sept. 30, 2005 |
This process is complemented by the six-member team of real estate professionals who support Phoenix. "I think a key feature of the fund is that we've only added to the team, no one has left, and it's been a slow and careful addition," Schatt says.
"One of the things that's been important to us since the beginning is that, unlike a number of similar organizations, we haven't compartmentalized our people. We have encouraged everyone who works in the group to be a generalist rather than a property sector specialist. This encourages a conversation and an exchange of ideas rather than advocacy of ideas," Schatt continues.
Schatt says the Phoenix team has been afforded the opportunity with its decade-plus of experience to see the real estate industry evolve from a more exclusive atmosphere with little accessibility to something more transparent. Both Schatt and Dybas agree that the nature of the industry has been what appeals to them about working in real estate.
"Covering REITs from the bottom up offers the opportunity to conduct due diligence in every major market of the U.S. for an array of property sectors, and globally for a few sectors," Dybas says. "It is incredibly rewarding to see numerous methods of value creation on the ground and through the stages of planning to the possibilities of development, redevelopment, retenanting, repositioning, etc. And we love to see this followed by refinancing or recycling of the capital deployed."
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