HEAD-TO-HEAD: Fidelity vs NNIP

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Both the Fidelity and the NN funds invest in globally listed property funds and have a focus on larger cap companies. In addition, both funds are relatively concentrated, with each fund holding 39 stocks in the portfolio.

However, both funds are very different when it comes to its investment process, according to Van Genderen.

The portfolio manager of the Fidelity fund, Dirk Philippa, looks for two types of companies: “dynamic value” companies, which make up between 50% and 70% of the portfolio, and high-quality companies which comprise the rest.

Dynamic value stocks are those companies that are out of favour, undergoing a turnaround or in a recovery situation. High quality companies have good earnings, cash flow growth and strong balance sheets.

Although Philippa’s focus is on dynamic value companies, he makes use of high quality companies to help mitigate downside risks in the portfolio, according to Van Genderen. “If he invests only in dynamic value companies, your risk profile will be quite different,” he said.

The portfolio managers of the NN fund, Michael Lipsch and Andrej Antonijevic, first divide the investment universe of around 800 stocks into clusters or sub-sectors. These clusters are groups of property companies that are similar within a country or a region. In total, there are around 45 clusters.

“They think that within each cluster, the correlation is quite high, but between the clusters, the correlation is less significant,” Van Genderen said.

The managers then select only one or two companies within each cluster. Stock selection is based on factors such as the property portfolio of a real estate company, quality of management and the financial strength of their balance sheets.

Van Genderen added that the Fidelity fund has much more leeway in terms of country allocation and can invest up to 10% outside of its benchmark. The NN fund, meanwhile, tends to follow its benchmark’s country allocations.

For example, the Fidelity fund’s exposure to Spain is at 7.6%, versus the 0.8% of its benchmark index, the FTSE EPRA/NAREIT Developed TR Index.

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