HEAD-TO-HEAD: Fidelity vs NNIP

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The three year performance of the Fidelity and NN funds vs Morningstar’s category index, the FTSE EPRA/NAREIT Global Index. Note: Fidelity’s benchmark, the FTSE EPRA/NAREIT Developed Index is included in the graph, while NN fund’s benchmark index, the GPR 250 Global 10/40 Index, is not available on FE.

Both funds underperformed Morningstar’s category index during the three-year period ending 3 May.

Van Genderen explained that small-cap real estate companies, especially in the US, started to do well in 2015, while large-cap ones struggled and lagged the category index.

“Both funds were more focused on those larger cap companies, so they struggled.”

He noted, however, that most of the global listed property funds available in the market are tilted towards large cap companies, because of liquidity concerns, which Fidelity explicitly acknowledged.

In terms of market behaviour, Van Genderen believes that the NN fund will follow the the market closely, while the Fidelity fund will be a bit more different.

“The Fidelity fund has a more contrarian approach. So it struggled a bit more during 2016 because small-caps tend to be highest valued and more growth companies. Fidelity lagged because it is more focused on companies that struggle or are in a turnaround phase.”

He also noted that investors should be aware of some changes that the NN fund has made in its portfolio. After its poor performance in 2016, managers chose to be less active in the Japan market and to stick closer to the benchmark. In addition, they changed the US part of its portfolio dramatically, switching from large cap companies and buying more smaller caps.

“Normally we don’t like managers changing their process or their positioning based on poor performance over a one-year period or a short period of time,” Van Genderen said. “And it came a bit of a surprise to me that they would change their positioning so rapidly.”

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