(Pictured: John Snowden)

Global real estate investment trusts are being increasingly promoted in Australia as part of the general search for yield, which has occupied many an investor’s mind for several years. But one Australian manager argues traditional management of global REITS has been sub-par.

Resource Real Estate Global Property Securities, one of the managers under the Channel Capital multi-affiliate group spun out of QIC last year, has produced a WHITE PAPER which says that global REIT managers have generally struggled to beat the index because of an over-reliance on identification of appropriate investments by discount to net asset value. The paper says they would be better off looking at forecast growth in intrinsic value.

The firm was launched last year as a joint venture between Resource Real Estate of the US and Channel Capital of Australia.

Sydney-based John Snowden, who heads up Asia Pacific, says: “Typical global REIT fund managers tend to build portfolios containing numerous stocks making it virtually impossible to outperform. Worse still is when this low active risk compels the manager to take on country risk to increase the tracking error. This can be dangerous when there are large macro-driven swings. Conversely, we concentrate investor capital in what we believe to be the best individual company opportunities globally, while ensuring sufficient exposure to each country in the index”.

He also questions the efficacy of fund managers attempting to mirror direct real estate platforms by setting up large teams in many locations. Snowden believes this unnecessarily adds to costs and can also dilute decision-making and reduce portfolio manager accountability.

Snowden’s partner in the US, Scott Crowe, says that a discount-to-NAV process is useful “but more of an anchor value around which the true value of the company will actually sit”.

Crowe and Snowden worked in the property area at UBS together for many years.