Meneses |
Siopack |
Dionisio Meneses, Jr. and David Siopack, Schwab Global Real Estate Fund
[September/October 2007]
By Christopher M. Wright
It's not often that one is able to work with a close friend every day, but that is exactly what Dionisio Meneses, Jr. and David Siopack, CFA have been able to do for the past 10 years. In fact, the duo are now co-managing Charles Schwab Investment Management's new global real estate fund, the Schwab Global Real Estate Fund (SWAIX), which launched on May 31, 2007.
Siopack and Meneses, who have 36 combined years of real estate industry experience, grew up near each other and attended rival high schools in San Francisco.
Meneses says that the duo make a good team, because Siopack is inclined to evaluate real estate markets and property portfolios while Meneses focuses most of his attention on securities analysis.
Global Aspects
According to Siopack, the fund allows real estate investors to diversify their holdings by allocating them across a broad range of global markets with different economic environments and marketplace fundamentals. "Going global enhances diversification," Meneses says.
The fund is investing in Asia, Europe and North America. Initially, Siopack and Meneses are emphasizing security selection in Canada, Japan, Singapore, Sweden and the U.K. and high potential urban markets in the United States, such as New York, Seattle and San Francisco.
| Top Five Companies: |
| Company |
% of Portfolio |
| The Westfield Group |
4.9% |
| Sun Hung Kai Properties |
4.2% |
| Land Securities |
3.7% |
| Mitsubishi Estate |
3.5% |
| Boston Properties |
3.4% |
| Sector Holdings: |
| Sector |
% of Portfolio |
| Office |
35.7% |
| Retail |
28.5% |
| Apartments |
13.0% |
| Industrial |
9.2% |
| Hotels |
6.9% |
| Unless noted, all data as of July 31, 2007. |
The fund has approximately 59 holdings, with a 10 percent cap on any one security. Current fund holdings include Boston Properties (NYSE: BXP) and Vornado Realty Trust (NYSE: VNO) in North America; The British Land Company (LSE: BLND.L) and Unibail Holding S.A. (PAR: UL) in Europe; and Hang Lung Properties Limited (HKG: HLPP.Y) and The Westfield Group (ASX: WDC) in Asia and the Pacific.
Unique Aspects
The Schwab Global Real Estate Fund is the first product based on analysis conducted by Global Real Analytics (GRA), developer of a proprietary global real estate database and research model. Schwab acquired the company in January 2007. The data-intensive GRA model sets the Schwab fund apart. Early on, GRA established networking relationships with leading real estate brokers in 250 markets around the world. The network has been retained, and the fund's 20 researchers leverage it for information. The team models some 400 companies in all.
The team gathers information at the country and property level. "We dig into detail. A lot of companies don't have the granularity that we do," Meneses says. Country factors include GDP, population growth and industry composition by market. Meneses says leverage figures prominently in securities analysis, which is not only the amount of debt but also how well the due dates ladder with lease expirations.
Schwab Global Real Estate Fund
The Schwab Global Real Estate Fund is benchmarked to the FTSE EPRA/NAREIT Global Real Estate Index. The fund seeks superior total return from both share price appreciation and dividend income.
The fund uses derivatives conservatively and employs ETFs where liquidity is lacking in the underlying stocks of a particular market or region.
The fund has annual turnover of 25 percent to 50 percent, which is relatively low for a mutual fund. "Real estate fundamentals don't change overnight. Trends take a few quarters to develop," Siopack says.
The fund has competitive expense ratios of 1.05 percent or 1.20 percent, depending on investment size, which is below the Morningstar category average of 1.52 percent. It is also backed by Charles Schwab Investment Management's distribution platform and marketing reach, which are second to none, Siopack says. Charles Schwab Investment Management, with over $200 billion in assets under management, currently manages 69 mutual funds.
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The analysis is mostly quantitative, but judgmental/subjective factors figure in, such as evaluation of management quality. The team meets with management to determine how long the executives have worked together and how well they manage their capital structure and governance issues, as well as their expertise in acquisitions, development, joint ventures and risk management. "We conduct 'reference checks' to verify that management has identified the proper objectives and has the capabilities to achieve them," Siopack says.
The team has 20 years of data, which they mine for historical trends. There is finally enough data on critical variables pertaining to real estate in various parts of the world to make global investing using the GRA model possible, Meneses says.
While some investors have been leery of opaque accounting practices in foreign countries, transparency is improving with the adoption of the REIT structure in more than 20 countries, Siopack says.
Christopher M. Wright is a regular contributor to Portfolio.
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