On Friday, September 29th, the two 2023-2024 Applied Real Estate Investment Track (AREIT) teams hosted the Fall Board Meeting. AREIT is the first program of its kind in the country, which gives students the opportunity to work with a team to manage a live $1.6 million portfolio of real estate investment trusts (REITs). At the meeting, students presented to the Isthmus Fund Board of Advisors their investment philosophy, process, and strategy for the upcoming investment period. The Board is comprised of senior-level REIT investment professionals who create a realistic environment and experience of the demanding client-manager relationship. Students get the unique opportunity to manage a live portfolio of investments in public securities, and receive advice and support from the Board throughout the year.
Due to large Real Estate Graduate program enrollment, the AREIT program has been split into two teams of five or six students each – the Red team and the White team. While there will be coordination between 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 190 to 200 basis points or more. However, each team presented unique strategies to the Board to achieve this goal. With a possible looming recession, lingering high inflation, rising unemployment, and an upcoming Presidential Election, the AREIT teams had many factors to consider when creating their strategies.
The Red Team’s Strategy
The Red team, who presented first and consists of students Victor Teichmann, Gabrielle Swider, Juan Perez, Ian Wright, and Dian Liu plans to follow a philosophy of investing in sectors and companies with resilient real estate fundamentals supported by attractive valuations on a relative basis. To go about this, they will focus on weighting certain sectors over others and screen stocks on a variety of qualitative and quantitative metrics.
The team then presented one possible investment that they believe fit into their strategy: the retail REIT, Simon Property Group (SPG). The Red team believes that this stock is positioned to outperform in economic headwinds and to generate strong growth in the next 12 months.
The White Team’s Strategy
The White team, however, presented their philosophy of growth investing. First and foremost, the team plans to target sectors that are likely to remain resilient during these uncertain economic times. Additionally, they plan to identify REITs with excellent internal and external growth opportunities, as well as REITs that boast strong growth-related fundamentals. They believe this strategy will allow them to strategically position themselves to outperform the index.
The security presented by the White team that fit into their outlook was the data center REIT, Equinix (EQIX). The White Team consists of students Victor Powell, Chris Janeck, Dave Vannucchi, Nate Erdmann, Tommy Zhang, and Francis Fan.
Both teams proposed to ramp up investment activity quickly in order end the semester with minimal cash in their portfolios. The teams begin the semester with approximately $800K in each of their portfolios, with each portfolio comprised of roughly 10% cash and 90% in the Vanguard VNQ ETF.
Next Steps for the Teams
After getting the Board’s approval on their philosophy, process, and strategy based on board member commentary, each team is responsible for two to three 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 roughly 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 are attending NAREIT’s REITworld Conference in Los Angeles in mid-November. This experience will provide a unique learning opportunity and the chance for students to correspond and interact with top REIT executives and investors.
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!