Quarterly Newsletter
Q1 2013
Genevieve Blouin, CFA, CMT
Caroline Bédard, CFA
1250 René- Lévesque Ouest
Bureau 2200
Montréal, (Québec)
H3B 4W8
www.altervest.ca
A word from the president
U.S. market view: a race for dividends!
The S&P 500 was up more than 10% since the beginning of the year. From a supply and demand
stand point, the message is clear: investors are back with a vengeance in U.S. stocks. Following a
depressing draw down streak estimated at 300B$ from 2008 to 2012 investors rushed off the sidelines
in the first quarter of 2013 and pumped 61B$ in mutual funds and ETFs that hold U.S. stocks. That is
more inflow than any full calendar year since 2004. Low interest rates coupled with financial and
political uncertainties lead them to defensive and dividend paying sectors such as Healthcare,
Consumer Staples and Utilities. The latter have gone parabolic since the beginning of the year
recording gains nearly twice the S&P500’s performance (see graph on right). There is one interesting
caveat; basic materials and resources significantly underperformed (they are flat since the beginning of
the year). It might imply that investors do not really believe in the global economic recovery, rather,
they seem to be willing to chase yield in the stock market so long as the Federal Reserve has their back.
U.S. stock mutual fund & ETF flows
Over-performance of dividend stocks
Fund launch September 1st, ,2013
We initially planned to launch a High Yield REIT fund at the end of the second quarter (as announced on BNN’s Berman
Call) that would be accessible to smaller investors. Unfortunately, there is a delay on the provider’s side. As we awaited
for our project to move forward, we carried on to launch another fund with our most performing absolute return REITs
strategy. We named it Altervest absolute NAREIT fund (NAREIT stands for North American Real Estate Investment Trust).
Like the High Yield REIT fund we plan to launch, it integrates conservative option strategies which aims to enhance
income, hedge and decrease volatility. We are very proud of this product as we feel it reflects most our brand’s values
and goals: conservative (low volatility target), innovative, centered on capital preservation while optimizing risk adjusted
returns. Altervest absolute NAREIT fund will be available on Fund Serve ( a platform available to most brokers) the 1st of
September 2013. The fund is available to accredited investors and Canadian institutions. The first 150 investors will be
granted a class I shares (i stands for initial investors). To get more information please contact us at 514-443-4397.
Our website will be available shortly. We invite you to take a look at www.altervest.ca We have added articles or
videos accessible in the media section that we feel are pertinent and educative on issues linked to Altervest such as:
Alternative investments, emerging managers, women owned firms, etc. We hope you enjoy it!
Cordially, Genevieve Blouin
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North American REITs Comment
North American REITs underperformed
(+8,1%) the broad U.S. stock indices
(S&P500 +10%, Dow Jones +11,35%) this
quarter but did much better than the
Canadian
stock
market
(+3,4%).
Altervest’s Real Estate absolute return
strategies have had impressive returns for
the quarter beating handily their
respective benchmarks. Our market
neutral reached 9,9% compared to 2,6%
for its benchmark and our long-short
reaped 11,4% versus 5,3% (HFRI Equity
Hedge Index). The North American REITs
offer tremendous advantages from an
absolute return standpoint because of
significant valuation discrepancies that
can readily be identified by experienced
managers.
We have positioned our portfolios to benefit from the outperformance of
the secondary markets (suburban) versus the CBD (Central Business
District) in the U.S. (graph above). Since suburban REITs are primarily mid
and small capitalization it is also indirectly a small-mid vs large
capitalization view. This trend has paid us well and we expect it to
continue as long as the cap rate spread between these markets remains
too wide (left graph). The cap rate spread currently stands at 200 bps
while its historical 10 year average is at 160bps. This indicates that there
is more room for a reversion to the mean. Several other factors also
concur with our hypothesis. First, PricewaterhouseCoopers’ 2013 Real
Estate Survey mentioned that investors were seeking higher revenues and
were willing to increase slightly their risk exposure to reach their
objectives. This trend was clear in the first quarter as investors turned to
high-end mid and small capitalization REITs. As a result small and midcapitalizations outperformed large capitalizations respectively by 360
basis points and 630 basis points. A second factor favouring suburban
markets is the growing demand from institutional investors. Thirdly,
suburban markets are now more accessible following the recovery and
increased accessibility of both unsecured debt markets and CMBS. As a
result more capital is injected in secondary and tertiary markets and even
reaches grade B buildings located in CBDs.
Real Capital Analytics reported direct market transaction volumes
reaching 29.6B$ in February which included a 15B$ transaction from
Archstone. Excluding the transaction, volumes fell 8% month over month
and rose 18% year over year. Japanese are very large holders of U.S. REITs
(48B$) making potential large inflows or outflows of capital meaningful to
their performance. The BoJ’s recently announced its intention to increase
the monetary base by 60 to 70 trillion Yen annually (doubling its monetary
base in two years). Japanese investors are likely to move capital overseas
to pick up yield in foreign currencies. This might mean capital inflow for
U.S. REITs. We believe that there are great opportunities in North
American REITs from an absolute return perspective.
CAROLINE BÉDARD CFA,
Senior REITs Portfolio Manager
3
North American Real Estate Products Performance
We went all out to deliver the best products for our clients. You can see Altervest’s performance (in yellow)
against their benchmarks. We also included two images that we feel reflect our dedication for risk management
(top right demonstrates how well we managed our portfolio volatility during in times of crisis). The Lower right
graphs illustrates our ability to optimize returns adjusted for risk. Altervest’s Absolute NAREIT product delivered
nearly twice the performance of its benchmark with the same volatility level. When compared to long only
indexes it delivered a similar performance with nearly half the volatility.
Market Neutral Monthly Returns *
Jan.
Feb.
March
2012 3.0%
-0.5%
0.3%
2011 -1.2%
0.4%
-0.6%
2010 1.4%
0.1%
1.3%
2009 -1.7% -0.6% -2.0%
2008
April
-0.8%
-0.7%
2.1%
3.8%
May
-1.2%
-0.8%
-1.1%
1.5%
June
0.9%
-1.3%
-1.1%
0.7%
July
-2.0%
-1.5%
-0.2%
-1.1%
August
3.2%
-2.5%
0.2%
5.9%
Sep.
3.4%
-1.0%
-0.2%
0.6%
Cumulative maximal loss represents -8.4 %
Oct.
0.1%
1.7%
1.3%
-0.4%
1.2%
Nov.
1.4%
-0.1%
0.3%
2.0%
-2.1%
Dec
0.3%
1.3%
0.9%
2.3%
1.8%
Annualized return since inception
Year
8.3%
-6.2%
5.1%
11.2%
0.9%
4.4%
Since inception to August 2012, the track record has been generated by Caroline Bédard at Planum Investment Management
Altervest Mkt Neutral vs HFR INDEXES
Long-Short-Option Overlay Monthly Returns
Jan.
Feb.
March April
2012
0.2%
0.4%
-0.8%
May
-1.4%
June
1.3%
July
-2.9%
August
3.1%
Sep.
3.5%
Oct.
-0.4%
Nov.
1.9%
Dec
0.9%
Return since inception
Year
5.8%
5.8%
Cumulative maximal loss represents -3.7 %
*Historical returns are in $CAD and net of all fees.
Altervest Absolute NAREIT vs HFR INDEX
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