{"id":1266,"date":"2019-11-20T10:00:47","date_gmt":"2019-11-20T10:00:47","guid":{"rendered":"https:\/\/advisor.wellington-altus.ca\/rosedalefamilyoffice\/?p=1266"},"modified":"2021-04-21T18:33:05","modified_gmt":"2021-04-21T18:33:05","slug":"the-love-letter-november-2019","status":"publish","type":"post","link":"https:\/\/advisor.wellington-altus.ca\/rosedalefamilyoffice\/blog\/2019\/11\/20\/the-love-letter-november-2019\/","title":{"rendered":"The Love Letter \u2013 November 2019"},"content":{"rendered":"

Real estate: perennially out of the limelight, but consistent outperformer<\/em><\/strong><\/p>\n

Over the course of a year, we attend dozens of presentations put on by institutional strategists, economists, and portfolio managers. These sessions are valuable as they add to our body of knowledge and help to compare our own market views with other market participants. A comment from a well-respected portfolio manager at a recent gathering contrasted significantly from our own beliefs. The portfolio manager asserted that the real estate sector of the stock market (namely Real Estate Investment Trusts) was historically one of the worst from a performance perspective. With many real estate entities currently in our managed portfolio program, and our long-standing view that real estate was a unique and important asset class, we set out to explore the facts.<\/p>\n

Using traditional media appearances as a gauge, the real estate sector is about as interesting as watching the proverbial grass to grow. This is because there are rarely any surprises worthy of front-page coverage. Diversified property portfolios (either geographically, by sub-sector, or both), predictable lease payments, conservative balance sheets, professional management, and relatively stable distributions are key attributes of the sector. These features collectively mitigate risks and contribute to the sector\u2019s boring reputation. The real estate sector\u2019s short- and long-term performance, however, hasn\u2019t been dull especially when compared with the overall Canadian equity market. As presented in exhibit 1, the real estate sector has consistently outperformed the TSX Composite on a total return basis over various measurement periods. Over the past 15 years, the real estate sector has generated an annualized total return of 10.3% versus the TSX Composite\u2019s 7.2%, with a similar degree of volatility (as measured by standard deviation). It is also noteworthy that over longer periods of time, cumulative distribution income has accounted for most of the real estate sector\u2019s total return. The sector may not garner much attention but has demonstrated its qualities where it matters most: superior risk-adjusted returns.<\/p>\n

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The real estate sector plays a dominant role in our managed portfolio<\/em><\/strong><\/p>\n

Real estate is currently the most heavily weighted sector within our primary managed portfolio. We\u2018ve been gradually adding exposure to this sector as we reduce cyclical equity exposure elsewhere in the portfolio. With several real estate subsectors to select from (e.g. residential, office, industrial, retail, lodging), our exposure is concentrated in various forms of residential real estate, which has historically been the most stable segment within the real estate sector. Below is a summary of some of our current real estate holdings:<\/p>\n

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Chartwell Retirement Residences (CSH.un)<\/em><\/strong><\/p>\n