Interesting News

REIT Stock Performance and the Interest Rate Environment

March 2018

REIT share prices, like the broader stock market, have been sensitive to changes in the outlook for interest rates, including both the short-term rates set by the Federal Reserve and the long-term rates that are governed more by market forces. Rising interest rates have been identified by some analysts as explaining the disappointing REIT stock performance during January and February. In fact, some analyses suggest that negative announcement effects on REITs associated with rising interest rates have become more pronounced since 2013. Recent performance, however, has been in contrast to earlier periods when REIT share prices generally performed quite well during periods of rising interest rates….(Read More)

The Real Thing

September 2017

Real Estate Investment Trusts (REITs), and other listed real estate securities, are equities. They are listed on stock exchanges and included in equity indices such as the S&P500, the Russell 1000 and the FTSE 250. Some investors are put off by this. They prefer to try to build their real estate portfolios by investing privately and directly in bricks and mortar. In this paper, we want to challenge and alleviate those concerns. We argue that listed real estate securities are fast becoming the only efficient way to build a truly global, diversified exposure to the asset class, and that returns have historically diverged quite quickly from those of the broad equity market, reflecting the performance of the underlying real estate assets. Moreover, we observe that listed securities offer a level of liquidity that is simply unavailable from direct real estate or even real estate open-ended funds. We believe the resulting short-term correlation with equity market volatility should be regarded as a source of opportunity to invest in genuine real estate returns at sometimes deep discounts…(Read More)

REITs Have Complicated Relationship Status With Interest Rates

July 10, 2017

Many investors associate REITs with interest-rate risk.  As an income-oriented sector, REITs can be negatively affected by interest-rate increases in a similar vein to fixed income.  As interest rates rise, all else being equal, the income produced by REITs at the current stock price is worth less, and so prices generally fall in order to increase the yield of those stocks relative to other income producing instruments.

Note the qualifier “all else being equal.”  For fixed income, this interest-rate risk is especially pernicious, because the coupon for a bond ( i.e. the income) is fixed at the time of issuance. Thus, as rates rise, the price of the bond must fall in lock step.  However, for income-producing stocks, including REITs, the income (i.e. dividends) is not fixed, and, in fact, may rise with improvements in economic fundamentals (which often coincide with interest-rate increases)…(Read More)

The Globe and Mail, George Athanassakos:
Active management vs. robots and ETFs: I know where I’m putting my money

November 16, 2016

I am a firm believer in stock picking.

I think stock picking, with the right process and the right temperament, works. Stock pickers, at least the ones I track, in the long run tend to outperform.

So, is active management doomed? I do not believe so. The more investors use ETFs and robo-advisers, the larger the mispricing of individual securities and the larger the opportunities for active managers – such as value investors – to outperform…(Read More)

Cohen & Steers, Thomas Bohjalian, CFA:
REITs and the Truth About Rising Rates

January 2016

Still concerned about REIT performance amid rising interest rates? Just look at the facts: REITs have historically delivered strong returns when the Federal Reserve increases rates, as this typically happens when the economy is getting stronger.

After increases in the fed funds rate, REITs have historically outgained stocks by nearly 8% on average over the following year…(Read More)

Financial Post, John Shmuel:
Making a virtue of volatility: Canadian hedge funds react to opportunities

January 23, 2016

Capricious markets have given nothing but headaches to investors the world over, but one group of financial wizards has made a virtue of all of this volatility: Canadian hedge-fund managers.

This country’s hedge funds have been strongly outperforming the broader market in the past year. The increased volatility has been embraced by managers, many of whom see their strategies perform better when the market is less predictable…(Read More)

The Globe and Mail, Opinion: David O’Leary:
Canada should require managers to disclose their [personal] investments [in their Funds]

October 28, 2015

According to research by investment research firm Morningstar, there is very good evidence that in the United States the more money a manager has invested in the funds he runs, the better those funds perform. Funds that are run by managers with no co-investment perform meaningfully worse. It isn’t hard to figure out why…(Read More)

The Globe and Mail, George Athanassakos:
Why value investors have the edge in the short term

August 4, 2015

Are markets efficient? Do stock prices discount all publicly available information, correctly and accurately? Is the only way to earn higher returns to take higher risk? It all depends who you ask. Academics who study and teach modern portfolio theory will say, “Of course markets are efficient.” But practitioners who put their money where their mouths are and make a living this way, they will say, “Of course markets are not efficient.”

If you side with academics, you must invest in index funds, and if you side with practitioners, you should invest in stock pickers and actively managed portfolios managed by portfolio managers who aspire to beat the index.

But are academics that different from, say, value investors? In fact, they are not. They both believe that markets are efficient in the long run. Where they disagree is whether the market is efficient in the short run. And if you look at it this way, one cannot seriously think that markets are efficient in the shorter term…(Read More)

The Globe and Mail, George Athanassakos:
The case for the much-maligned stock picker

November 29, 2013

“As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence… One’s knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence.”
John Maynard Keynes

Here we go again! Active portfolio managers, like Rodney Dangerfield, get no respect. This year they have outperformed the market, but commentators insist on spoiling their party by pointing to less impressive long-term results that show less than a quarter of mutual funds beat the index over a decade.

That is so – but the long-term numbers are averages for all funds and therefore should be approached with caution. In my experience, the average fund manager is more concerned with losing his job than doing the right thing. As a result, many managers don’t really try to pick stocks. They become closet indexers, or they diversify indiscriminately to make sure they never stray too far away from the crowd.

That is a shame. I believe stock markets are likely to become increasingly volatile, given a slowdown in productivity growth, increases in taxes and declines in government spending, as well as the likely reappearance of inflation in years to come. In my opinion, to make money in this environment, a portfolio manager has to be an active, disciplined and patient stock picker...(Read More)

Please click here to read the article on the Globe and Mail’s website.

The Globe and Mail:
Canada Shops, Economic Slowdown Fears Drop

July 24, 2013

What happened to Canada’s worrisome economic slowdown? It look like consumers were so busy shopping that they zoomed right by it.

Statistics Canada reported Tuesday that retail sales surged 1.9 per cent in May, the biggest monthly growth in more than three years. The figure trounced economists’ expectations for a 0.4-per-cent gain. The expected contribution from consumer spending to second-quarter gross domestic product growth has just taken a significant leap – no small thing, since household consumption of goods accounts for roughly a quarter of GDP.

The stores haven’t been the only place where the economy has shown impressive, and unexpected, strength. The labour market added an astounding 95,000 jobs in May – and held on to those gains in June, a feat many economists considered unlikely. Housing starts have rebounded into the 200,000 territory, a surprising show of strength in a sector that had been in full retreat since last fall and had been a significant drag on GDP growth. Wholesale trade surged 2.3 per cent in May. Manufacturing sales rose 0.7 per cent; new orders jumped 1.8 per cent… (Read More)


The Globe and Mail:
Oil prices surge toward global levels as rail rush cuts discount
Oil: ‘They’re draining the swamp at Cushing’

July 19, 2013

The Cushing logjam has broken, and with its opening North American oil has lost the bargain-basement status it has sustained for the past two years.

Since early 2011, oil producers in the United States and Canada have suffered from large discounts in the market – the trendsetting West Texas Intermediate was priced well below international-benchmark North Sea Brent, while a larger-than-normal gap opened up between WTI and Canadian heavy crude.

The boom in U.S. tight oil production, on top of growing oil sands volumes from Alberta, created a glut at Cushing, Okla., a terminus that served as a traditional pricing-point for WTI but had virtually no pipeline access to the massive refinery capacity at the Gulf Coast. As a result, companies invested heavily in new transportation – pipelines, rail cars, barges, even trucks – to move landlocked North American crude to coastal markets where it would fetch international prices… (Read More)


The Globe and Mail:
‘Bitumen bubble’ turns to ‘bitumen bump’ in oil price

July 11, 2013

A second straight week of dwindling U.S. crude inventories propelled oil prices to their highest in 16 months, pushing Canadian heavy crude prices to levels that are nearly double those seen when the government of Alberta warned of a $6-billion shortfall in energy revenue.

The Canadian heavy crude market is benefiting from both rising U.S. benchmark oil prices as well as unexpectedly narrow discounts to lighter-grade oil. That spread is now around $16 a barrel, compared with a $40 gap last January when fears about insufficient pipeline capacity weighed on producers… (Read More)


Financial Post:
‘Open for business’:
B.C. natural gas minister Coleman prepares fast track for LNG

June 13, 2013

Nine LNG projects have been proposed for the northern B.C. coast to export natural gas from the province’s large shale fields to consumers in Asia.

Led by giants such as Royal Dutch Shell PLC, Petronas, Chevron Corp., BG Group and Exxon Mobil Corp., the projects are in various stages of planning and none has made final go-ahead decisions.

If they do, they would accomplish in years what would take decades in other parts of the economy, and transform the coast around Kitimat and Prince Rupert into a busy processing and marine export point…. (Read More)


Rick Santelli looks north of the border for Jobs

June 7, 2013

CNBC’s Rick Santelli compares Canada’s job number in May 2013 to the U.S.’s May nonfarm payroll report.

CIBC Economics referred to Canada’s employment report as “a stunning 95,000 [job growth] in May—the largest monthly increase in hiring in ten years.” To put this in context using a typical 10 to 1 U.S. to Canada (population driven) ratio, this is analogous to the U.S. generating almost 1 million jobs in one month.

The quality of the employment growth was very high with an overwhelming amount of full time and private sector jobs. Specifically, there were 94,600 private sector jobs created, 6600 public sector jobs created, and a decline of 6200 in self-employed. In addition, over 80% of the jobs were full-time positions.

The province of Ontario generated over 50,000 new jobs and Quebec over 20,000 (the manufacturing centers of Canada) balancing the recent years strength in Western Canada. By industry, both goods and services saw increases in employment. Retail/wholesale, business support and educational jobs increased along with hospitality and other services.

The Canadian Press:
Canadian Tire to spin off real estate holdings into investment trust

May 9, 2013

Canadian Tire Corp. Ltd. announced Thursday that it will create a $3.5-billion real estate investment trust to unlock the value of its property holdings, with an initial public offering expected later this year.

The move follows on the heels of a similar plan by grocer Loblaw Companies Ltd.

The proposed new REIT would acquire a majority of the company’s real estate, including a geographically diverse portfolio of some 250 properties comprised largely of Canadian Tire Retail stores, Canadian Tire anchored retail developments and one distribution centre.

Canadian Tire says the properties, totalling about 18 million square feet, have an approximate market value of $3.5 billion… (Read more)

Please click here to view a television interview with Vision Capital’s Chairman and Co-Portfolio Manager, Frank Mayer, discussing this news.

The Globe and Mail:
High quality office property the ‘belle of the ball’

March 19, 2013 | Beverley Smith

Perhaps it sounds like a broken record at this point: Economically, Canada is in a good spot. Just look at the bustling commercial real estate market. A wall of capital is waiting to be placed, and its investors are fighting over core assets in Canada, experts say.

High-quality commercial real estate has become a good alternative to bond investments for a large pension fund, or other investment vehicles, says Ian MacCulloch, national research director with Colliers International, a real estate investment advisory company.

‘It’s a secure, hard asset that doesn’t drop off the face of the earth quickly,’ he says. ‘It’s got a very long investment horizon and in Canada, particularly, it’s rock solid, at 95 per cent occupied, with good tenants and rents going up. It’s become the belle of the ball of the investment world.’…(Read more)

Financial Post:
Bigger is not always better | Small investment firms have edge over large ones

March 12, 2013

“… Some firms are so large that the liquidity of the market creates a challenge, which is why many can outgrow the investment style that made them successful in the first place. Unfortunately, it isn’t uncommon to see these larger firms expand into closet indexers, performing in-line with a passive index.

Smaller firms can also often get you from point A to point B at a lower cost because of their low overhead. For example, some firms have eliminated the relationship manager, and put the person making the actual investment decisions directly in contact with the client.”(Read more)

The Globe and Mail:
Buffetted: Why the world’s greatest investor changed his strategy

March 5, 2013

Warren Buffett’s latest annual letter to shareholders demonstrates once again that the world’s greatest investor marches to his own drummer.

The letter, published Friday, shows that Mr. Buffett’s flagship company, Berkshire Hathaway Inc., continues to hold a highly concentrated portfolio. About 64 per cent of its holdings are in only five stocks…(Read more)

Please click here to view the article in PDF format.

The Globe and Mail:
A Lumber Boom that’s Built to Last

January 22, 2013

[Lumber] Prices have soared on rebounding U.S. housing starts, strong exports to China and restricted timber supplies – and many expect the good times to continue…

Please click here for view the article

The Globe and Mail:
Finding a portfolio manager that runs against the herd

November 10, 2012

“In my last column, I suggested that the stock picker’s lot in life is not as bad as it’s made out to be.

I argued that many of the portfolio managers competing in this zero sum game (for every winner, there’s a loser) are destined to underperform for structural reasons, which leaves more of the spoils available for the truly active players.

Today, I’m going to focus on identifying the managers who are genuinely trying to win and provide a framework for determining which ones are best positioned.

Truly, madly, active”…(Read more)

Please click here for a PDF version of the article

McKinsey & Company:
How alternative investments are going mainstream

September 2012

The financial crisis seemed to mark a turning point in the spectacular growth of alternative investments, such as managed investments in hedge funds, private equity, real estate, commodities, and infrastructure. Poor performance and liquidity problems led to massive redemptions in several categories. By now, however, those problems have subsided, and alternatives are back on track…(Read more)