How this fundie balances the need for growth, income, and liquidity

Kruth: In the states alone, we look at 150 companies all the time. We have real time valuation models and that's globally, we do this for every region. The regional portfolio manager, in my case, North America, and we have three others, work with our analyst team to bubble up ideas. But we definitely understand that these top-down areas we talked about, whether it be data centres, we haven't talked about technology and industrial and storage, these are behavioural things that we see in the US that we tend to lead, but it's around the world. So people are thinking the same way in Canada, in Europe and Asia. So it is a top-down overlay. 

We're like, "Look, we have to look at industrial in all these different markets." We find companies that have good earnings growth, good valuation, and it kind of bubbles up. So it's a bit of both. It's a bit of top-down and bottom-up. We take a very detailed under the hood look, we turn over a lot of rocks and we know the companies very, very well.

Kruth: Our largest company in the portfolio is American Tower (NYSE: AMT), which is a global mobile tower company. They're a US$100 billion market cap. So with a small fund or even a medium size fund of, let's say if we're up to five or 10 billion, we would have very limited issues with selling and buying the securities on most companies. So we're not worried about liquidity. 

The companies themselves, they have lots of liquidity because they have lowly levered balance sheets, so they're fine. But from our perspective, it allows us to make choices on sectors and companies and then implement them fairly quickly. We're not about waiting around. We have a pretty active portfolio management structure. 

The senior PMs are always looking to be positioned in the best opportunities. Recently we had a company in the storage industry that was one of our biggest holdings, it's being taken over by a larger player in the same industry.

It's up 45% since we bought it in this environment, in under eight months from when we bought it, give or take. And we need to reposition because now it's hit that number. We need to reposition that. So that's part of the active management that we have. 

LW: How does the fund balance investor needs between growth, income, and liquidity?

Kruth: So I think of it this way, we're trying to get market like yields with better than inflationary growth through the better asset classes. So right now, for example, the index is around a four and a half to 5% dividend yield. We're providing about that, or a little bit lower after fees to our shareholders. 

So we call it low mid-fours, and that's a competitive cash rate of return in the real estate world today. On top of that, we're looking for better than inflationary growth.

And we've found that over time, if you get better than inflationary growth and a bit of sprinkling, some M&A and other good things that happen, you tend to get somewhere between a five and 6% capital appreciation, which gives us that kind of neat eight to 10, maybe slightly better total return on average. 

And if you go back 30 years even and look at public market and private market real estate, the average return has been somewhere in that eight to 10% for actively managed funds. And I've run, prior to Texas, I've done this at Goldman Sachs and Alliance Capital in publicly traded funds, and that's really where we were. 

So I think there's a lot of history to show that you can, we have done that and our fund is about a 9% return now. So that's about the way it breaks down about four to five in dividends and about 6% in capital appreciation.

Broaden your income horizons

With demand for industrial properties strong and vacancies at record lows, the outlook for rents and valuations remains attractive, a view reflected in our positioning within the Dexus Global REIT Fund. Inside the world of industrial REITs, things are better than their share prices imply. And therein lies the opportunity. Click here to learn more about our offerings.

Managed Fund

Dexus Global REIT Fund

Global Property

View