BMO European Real Estate Securities

This fund provides access to a portfolio of real estate securities listed in the UK and Europe. The team is one of the bigger players in this space and runs several other similar mandates. Consequently, it has one of the best resourced and most experienced teams.

Previously F&C Real Estate Securities

Our opinion

The size and strength of the team differentiate the BMO European Real Estate Securities fund from some of its competitors. Also, the unique way the managers use the full range of tools available to them, namely by shorting unfavoured stocks, enables them to express a wider range of views and better manage risk. This is a big positive given the small size of their investment universe. Put into practice, this translates into favourable risk/return characteristics.

Fund manager

Marcus Phayre-Mudge has been involved in property investment since 1992. He has been co-manager of BMO European Real Estate Securities fund since its launch in 2010 and has also run the Elite Rated TR Property Investment Trust since 2004. Marcus joined the company (then Thames River) in 2004, having also worked at Henderson Global Investors and Knight Frank. He qualified as a Chartered Surveyor and has a BSc (Hons) in Land Management from Reading University. Co-manager Alban Lhonneur's career in property started in 2006, and prior to joining F&C (which was later bought by and rebranded BMO), he worked at Citigroup and Societe Generale. He completed a BSc Business and Management Programme at ESC Toulouse and has a post-graduate Specialised Master in Finance from ESCP-EAP.

We see real estate as an income stream with a capital kicker.

Marcus Phayre-MudgeFund manager

Investment process

The managers combine macroeconomic analysis of the wider market, to determine which areas they wish to get exposure to, with individual stock selection to find the companies they want to take that exposure with. Each company is assessed on merits such as the quality of the management team and assets, the fundamental drivers in the sub-sector, and valuations. The managers will look at economic outlook data such as savings rates, any major macro themes such as unemployment numbers, and an industry’s financial conditions. Depending on whether they like or dislike a stock, they will then decide how much to invest and with how much conviction - or even short the stock, thus being able to profit should the share price fall.

ESG

ESG - Limited  

This fund focuses primarily on governance, which is a key element in the investment decision-making process. Marcus looks for well-managed businesses, with management teams that have effective oversight of their portfolio of assets. He will avoid poorly run companies, which he believes will result in financial issues in the long-term and prove to be poor investments. In addition to this, Marcus does supplement the analysis with data from a number of sources, both external (through Global Real Estate Sustainability Benchmark and MSCI) and through the in-house Responsible Investment team. While this may be referenced in analysis, it is not a primary focus of the portfolio construction.

Risk

As the investment universe BMO European Real Estate Securities is benchmarked against is very small, the portfolio will only take incremental bets away from it. However, the ability to short stocks (the act of benefiting should the price fall) means that they can perform differently from the benchmark. This ability can increase the risk though. The managers will try to mitigate this by pairing up their short ideas with a corresponding ‘buy’ idea so that they hedge their bets on an outcome. Their analysis also aims to highlight risk from both the stocks themselves and that of the wider market.

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