On Friday, September 25, the two 2020-2021 Applied Real Estate Investment Track (AREIT) teams hosted the Fall Board Meeting, in which students presented to the Fund Board of Advisors their investment philosophy, strategy, and goals for the upcoming investment period. The Board is comprised of senior-level REIT investment professionals who create the environment and experience of a very realistic and demanding client-manager relationship. Students get the unique opportunity to manage a live portfolio of investments in public securities; specifically, Real Estate Investment Trusts (REITs) and receive advice and support from the Board throughout the year.
New for 2020, due to large Real Estate MS enrollment, the AREIT program has been split into two teams of five students each – the Red team and White team. While there will be coordination amongst the teams regarding academics and portfolio administration, the Red and White teams presented completely different strategies for the Board’s approval and will continue to make investment decisions independently.
To accommodate the two teams, the current Isthmus Fund will be split in half, with each team responsible for the investments of their respective half.
Two Teams, different strategies, same investment goal: The goal for both the Red and White teams is to outperform the MSCI US REIT Index (RMZ) by 150 bps or more. However, each team presented unique strategies to the Board to achieve this goal.
The White Team’s Strategy: The White team, who presented first and consists of students Peter Laskey, Flora Tong, Jacob Borenstein, Evan Zimmermann, and Eric Gumm, outlined their strategy of working within the “COVID Framework.” They defined the strategy as using the ongoing developments and news concerning Covid-19, including vaccine development, as the guiding principle for their investment decisions.
The team then presented two possible investments that they believe fit into the strategy: Mid-America Apartment Communities and Healthpeak Properties. The White team believes that many real estate securities are undervalued and, therefore, now is an opportune time to invest in REITs. Therefore, the team proposed to invest 60% of their fund into the Vanguard VNQ ETF and 40% in cash while investments are made throughout the semester. The team will draw down the cash first as they make investments.
The Red Team’s Strategy: The Red team, meanwhile, presented their philosophy of finding “Quality Value,” in which the team is targeting investments in undervalued stocks with growth potential, while avoiding “value traps” – or those companies whose long-term demand has decreased due to Covid-related headwinds or are verging on obsolescence. The two securities presented by the Red team that fit into this outlook were Store Capital Corp and Ventas, Inc. The Red Team, while also believing in the current attractiveness of REIT investments, proposed to maintain the current portfolio of 50% cash and 50% VNQ – the higher cash position due to uncertainty in the upcoming presidential election. The Red Team consists of students Jack Curtin, Tianyi Ding, Blake Richter, Justin Kloehn, and Sam Jagodzinski.
Next Steps for the Teams: Each team is responsible for two weekly stock pitches to AREIT Advisor Tim Pire for evaluation and, possibly, investment. The teams will invest their respective portfolios throughout the semester with the goal of being 90 – 95% invested by year end. Accordingly, each team will run weekly attribution analysis and reallocate funds if the portfolio falls outside of their risk tolerances.
Outside of portfolio management, the teams will remotely attend Nareit’s REITworld conference in mid-November. This will provide a unique learning opportunity and the chance for students to correspond with top REIT executives and investors. Furthermore, the teams plan to encounter ongoing Covid-related disruptions throughout the academic year, which will provide a plethora of challenges but also the opportunity to further develop their communication and organizational skills.
Hats off to the 2020-2021 AREIT teams on the Board’s approval and a well-coordinated remote meeting! The Winter Board Meeting will occur in late January, and we eagerly await to learn how each team’s portfolio has performed in a very difficult investment environment. Stay tuned!