Matthew Norris, CFA

The UK is the second largest institutionally investible real estate market in the world but just 2% of Residential assets are owned by institutional investors. This great piece by Michael Adefuye explains why we remain convictional on the enduring attractiveness of the sector over the long term

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Great insights as always from David Hedalen and team which are noted in this article. Our research supports our investment teams strong conviction that we have "turned the page" and the European real estate market is priced to deliver attractive prospective returns. #turnthepage #europeanrealestate #alpha

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The volume of pulled real estate deals in the UK has soared to a new high. Samantha McClary digs into the latest MSCI Real Assets data for EG. https://lnkd.in/ebPqKUhn

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Further clear thinking on low dependency and run on strategies…

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The data we have had very few legacy deals in it. So, whilst the principle of legacy deals causing the occasional outlier holds, the generalisation is that there is some other factor. To paraphrase to the way it will be expressed when the research is published as an academic paper: 'all rational factors have been accounted for, which means the wide variance is the result of behavioural factors'. As to the LGPS funds not being subject to the technical provisions of the FCA because they may or may have not opted out...I am not going to opine as this is beyond my area of expertise. However, this doesnt mean that individual funds are not subject to such wide variance in product pricing between one another and, I suspect, would be livid if they found out they weren't being treated fairly and equally. The resolution is easy. Check. Check you are receiving VfM (which is comparing what you have to a PROPER market benchmark) and, even if you are getting good VfM ask your manager how what you receive compares to what your peers receive for the same thing. Ask to see side letters that offer discounts, and ask to see the range of fees for identical products from that specific manager.

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Interesting findings from Research Affiliates' Rob Arnott on the outperformance of index deletions. This highlights one of the hidden costs of indexing - the arbitrage activity around index changes. Index providers announce changes before they are executed, which results in an opportunity for active market participants to legally front-run the trades. Any arbitrage gain must be counterbalanced by a loss of value to the index. As discussed in the article, the effect is exacerbated by the momentum effect surrounding index additions and deletions. One solution to this is a light-touch active approach to index reconstitution trades, such as we see from Dimensional Fund Advisors. Fortunately, Brandeis University has estimated that the scale of this cost to indexers is immaterial in the long term. https://lnkd.in/eGMUkvcn https://lnkd.in/ecpksiuk #evidenceinvesting Sparrows Capital Limited

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How are retail investors navigating market volatility? Great to speak to a podcasting master, in the form of Carl Hazeley from Finimize, about the results of the latest Modern Investor Pulse - lifting the lid on retail investor trends. Listen to the latest abrdn Macro Bytes episode here -> https://lnkd.in/e73BV6dc

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Acadian Asset Management has an interesting study on concentrated portfolios (“𝗖𝗼𝗻𝗰𝗲𝗻𝘁𝗿𝗮𝘁𝗲𝗱 𝗘𝗾𝘂𝗶𝘁𝘆: 𝗣𝗿𝗮𝗰𝘁𝗶𝗰𝗲 𝗩𝗲𝗿𝘀𝘂𝘀 𝗣𝗿𝗲𝗺𝗶𝘀𝗲” https://lnkd.in/eZsdkM9f ) Being a systematic manager which invests in very diversified portfolios, Acadia’s conclusions are not a surprise: “𝘉𝘶𝘵 𝘪𝘯 𝘢𝘯 𝘦𝘮𝘱𝘪𝘳𝘪𝘤𝘢𝘭 𝘢𝘯𝘢𝘭𝘺𝘴𝘪𝘴 𝘰𝘧 𝘢 𝘣𝘳𝘰𝘢𝘥 𝘴𝘦𝘵 𝘰𝘧 𝘤𝘰𝘯𝘤𝘦𝘯𝘵𝘳𝘢𝘵𝘦𝘥 𝘴𝘵𝘳𝘢𝘵𝘦𝘨𝘪𝘦𝘴, 𝘸𝘦 𝘧𝘪𝘯𝘥 𝘯𝘰 𝘦𝘷𝘪𝘥𝘦𝘯𝘤𝘦 𝘵𝘩𝘢𝘵, 𝘪𝘯 𝘱𝘳𝘢𝘤𝘵𝘪𝘤𝘦, 𝘵𝘩𝘦𝘺 𝘰𝘶𝘵𝘱𝘦𝘳𝘧𝘰𝘳𝘮 𝘢𝘴 𝘢 𝘨𝘳𝘰𝘶𝘱.” Concentrated equity strategies have drawn considerable interest from institutional investors in the long-only universe: frustrated with active fees charged for closet indexing, the premise of investing with stock pickers who focus on a limited set of “high conviction” holdings has intuitive appeal. The main result from the study is “𝘵𝘩𝘢𝘵 𝘸𝘩𝘪𝘭𝘦 𝘥𝘪𝘴𝘤𝘳𝘦𝘵𝘪𝘰𝘯𝘢𝘳𝘺 𝘴𝘵𝘰𝘤𝘬 𝘱𝘪𝘤𝘬𝘪𝘯𝘨 𝘢𝘣𝘪𝘭𝘪𝘵𝘺 𝘴𝘶𝘳𝘦𝘭𝘺 𝘦𝘹𝘪𝘴𝘵𝘴 𝘢𝘮𝘰𝘯𝘨 𝘪𝘯𝘴𝘵𝘪𝘵𝘶𝘵𝘪𝘰𝘯𝘢𝘭 𝘮𝘢𝘯𝘢𝘨𝘦𝘳𝘴, 𝘤𝘰𝘯𝘤𝘦𝘯𝘵𝘳𝘢𝘵𝘪𝘰𝘯 𝘪𝘴 𝘯𝘰𝘵 𝘢𝘯𝘺 𝘦𝘢𝘴𝘺 𝘴𝘰𝘭𝘶𝘵𝘪𝘰𝘯 𝘧𝘰𝘳 𝘪𝘯𝘷𝘦𝘴𝘵𝘰𝘳𝘴 𝘭𝘰𝘰𝘬𝘪𝘯𝘨 𝘵𝘰 𝘣𝘰𝘰𝘴𝘵 𝘢𝘤𝘵𝘪𝘷𝘦 𝘱𝘦𝘳𝘧𝘰𝘳𝘮𝘢𝘯𝘤𝘦”. Strategies with the most concentrated portfolios represent a disproportionate fraction of the best performers, but also of the worst performers: these strategies are either very good or very bad, no middle ground. “𝘛𝘩𝘪𝘴 𝘪𝘴 𝘪𝘯𝘵𝘶𝘪𝘵𝘪𝘷𝘦: 𝘤𝘰𝘯𝘤𝘦𝘯𝘵𝘳𝘢𝘵𝘦𝘥 𝘴𝘵𝘳𝘢𝘵𝘦𝘨𝘪𝘦𝘴 𝘥𝘦𝘭𝘪𝘣𝘦𝘳𝘢𝘵𝘦𝘭𝘺 𝘧𝘰𝘳𝘨𝘰 𝘥𝘪𝘷𝘦𝘳𝘴𝘪𝘧𝘪𝘤𝘢𝘵𝘪𝘰𝘯, 𝘢𝘯𝘥, 𝘵𝘩𝘦𝘳𝘦𝘧𝘰𝘳𝘦, 𝘥𝘪𝘴𝘱𝘭𝘢𝘺 𝘩𝘪𝘨𝘩𝘦𝘳 𝘭𝘦𝘷𝘦𝘭𝘴 𝘰𝘧 𝘢𝘤𝘵𝘪𝘷𝘦 𝘳𝘪𝘴𝘬.” This is also common sense: no one ever said stock picking is easy and for everyone. However, I believe the reason for the aggregate underperformance is due not to concentration per se, but rather to execution (as discussed in this book review https://lnkd.in/eWuZ2X_u ): 𝘁𝗵𝗲 𝗿𝗲𝗮𝗹 𝘀𝗸𝗶𝗹𝗹 𝗶𝗻 𝘀𝘁𝗼𝗰𝗸 𝗽𝗶𝗰𝗸𝗶𝗻𝗴 𝗶𝘀 𝗻𝗼𝘁 𝗶𝗻 𝘀𝗲𝗹𝗲𝗰𝘁𝗶𝗻𝗴 𝘁𝗵𝗲 𝗯𝗲𝘀𝘁 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁𝘀, 𝗯𝘂𝘁 𝗶𝗻 𝘄𝗵𝗮𝘁 𝘆𝗼𝘂 𝗱𝗼 𝗮𝗳𝘁𝗲𝗿, 𝘄𝗵𝗲𝗻 𝘀𝘁𝗼𝗰𝗸𝘀 𝗲𝗶𝘁𝗵𝗲𝗿 𝗴𝗼 𝘂𝗽 𝗼𝗿 𝗱𝗼𝘄𝗻. 

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Closet Benchmarking Among UK Equity Funds? In the ever-evolving landscape of UK equity funds, it’s important to identify which funds are truly active versus those more aligned with the benchmark. Our latest research, visualized in the scatter chart below, sheds light on where funds fall on this spectrum, with the X-axis showing stock active share and the Y-axis displaying a blend of country and industry-level active share, compared to the FTSE All Share index. We observe a wide spread of results, showing the diversity in fund strategies, from highly independent stock-pickers to those with a more benchmark-aligned approach. We highlight 4 funds with the greatest independence from the benchmark: • Lindsell Train UK Equity • Finsbury Growth & Income Trust • Aviva UK Listed Equity • Castlebay UK Equity What do they have in common? Low to zero allocations to sectors like Energy, Health Care, and Materials - proving their differentiated approach from the FTSE All Share index. However, it's crucial to note that while 'closet benchmarking' can suggest a lack of transparency, that might not be the case here. Many of the funds with lower active shares fall into specific categories, such as ‘tilt,’ ‘enhanced index,’ or ‘beta plus’. These approaches are deliberate and part of a well-defined fund strategy to remain aligned to benchmark indices. In terms of performance, the inset chart shows that high active share funds have outperformed their lower active share peers over time. Since April 2012, high active share funds have returned 164% on average, compared to 131.6% for low active share, 126.2% for medium active share, and 134.5% for the benchmark FTSE All Share ETF. What do you think about active investing with benchmark constraints? Is true independence from the benchmark the key to success, or do defined strategies with low active share still have a place in the market? #UKEquity #ActiveManagement #FundResearch #Investing #PortfolioManagement #assetmanagement #stocks

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Hello everyone. Hope your week has started well. I just wanted to highlight some excellent reporting from Jamie Colvin in Citywire - see article in first link below. Tom Poynton has also had the ingenious idea to create a "forum" to garner an understanding of retail investors' understanding of the many issues facing the investment companies sector (the link is in the article). Our campaign has often highlighted how new well-intended Consumer Duty regulations have turbo-charged the negative impact of IC "cost" disclosures. Recent attention has rightly been given to one aspect of this turbo-charging: retail platforms wrongly interpreting "value" and "cost" and not only misinforming consumers, but now banning them from investing in investment companies based on utterly floored logic. Do these platforms have the expertise to be making these judgements? Where they do not and they outsource, has there been proper due diligence on third parties used to make assessments of value? https://lnkd.in/eA4SHXjW We will not rest. Have a good week. Ben https://lnkd.in/eh9G9NWM

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𝗜𝘀 𝗧𝗵𝗲𝗿𝗲 𝗥𝗲𝗮𝗹𝗹𝘆 𝗡𝗼 𝗡𝗲𝗲𝗱 𝗳𝗼𝗿 𝗔𝗹𝘁𝗲𝗿𝗻𝗮𝘁𝗶𝘃𝗲𝘀 𝗡𝗼𝘄 𝗧𝗵𝗮𝘁 𝗕𝗼𝗻𝗱 𝗬𝗶𝗲𝗹𝗱𝘀 𝗔𝗿𝗲 𝗛𝗶𝗴𝗵𝗲𝗿? A piece from David Thorpe at the Financial Times suggests some UK multi-asset investors now view alternatives less favourably, with some arguing there's "no need" for them because higher bond yields are providing better returns and potential diversification for equities if a recession hits. While it is certainly true that expected returns from fixed income are higher now, there remains a strong case for allocating to alternatives, especially liquid diversifying strategies. Here's why: 𝗥𝗶𝘀𝗸 𝗼𝗳 𝗦𝘂𝗽𝗽𝗹𝘆 𝗦𝗵𝗼𝗰𝗸𝘀 𝗮𝗻𝗱 𝗦𝘁𝗮𝗴𝗳𝗹𝗮𝘁𝗶𝗼𝗻: While bonds may diversify equities in a recession driven by falling demand, there's still a risk of supply shocks or stagflationary episodes. The significant bond sell-off in the 1970s occurred during the second wave of higher inflation. 𝗗𝗶𝘃𝗲𝗿𝘀𝗶𝗳𝗶𝗰𝗮𝘁𝗶𝗼𝗻 𝗟𝗶𝗺𝗶𝘁𝗮𝘁𝗶𝗼𝗻𝘀: Yes, government bonds have historically diversified equities in demand-driven recessions, but other fixed income instruments like credit and high yield bonds tend to become more correlated with equities during major downturns, making them less effective as portfolio diversifiers. 𝗛𝗶𝗴𝗵𝗲𝗿 𝗘𝘅𝗽𝗲𝗰𝘁𝗲𝗱 𝗥𝗲𝘁𝘂𝗿𝗻𝘀 𝗳𝗼𝗿 𝗔𝗹𝘁𝗲𝗿𝗻𝗮𝘁𝗶𝘃𝗲𝘀: Many alternative investment strategies, such as managed futures and global macro, hold substantial levels of cash and use derivatives for exposure. The higher cash rates now also boost the expected returns for these strategies. 𝗘𝗾𝘂𝗶𝘁𝘆-𝗹𝗶𝗸𝗲 𝗥𝗲𝘁𝘂𝗿𝗻𝘀 𝘄𝗶𝘁𝗵 𝗟𝗼𝘄 𝗖𝗼𝗿𝗿𝗲𝗹𝗮𝘁𝗶𝗼𝗻: In a higher rate environment, many alternative strategies, particularly those running at higher levels of volatility, may generate equity-like returns with low correlation to equities. Adding them to a portfolio can result in smoother overall portfolio performance.

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A little scoop. Schroders has informed clients it will be adding a 'Sustainable Focus' label to a £1bn fund. After much hand-wringing from asset managers, more are announcing these labels. The message to fund distribution is these labels will matter and if you don't get one for your fund it may well lose out. #distribution #assetmanagement #citywireselector #ESG #FCA #sustainableinvesting https://lnkd.in/eMHdpueW

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🎙️ Imogen Ebbs and George Fraser-Harding share their views on UK and European real estate in the coming months. Read the full interview 👇 https://bit.ly/4ch1gYd #Equity #realestate #megatrends

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Sad to see yet another Frontier Markets fund closure...ETFs were however never a good vehicle for investments in FM and smaller EM countries. Many investors were rightfully disappointed by the performance of these markets but should consider to build a position or increase allocations. A diverse universe of countries with 1+ billion population size and deep universe of companies that are trading at deep discount valuations compared to historical levels and compared to the levels of DM/EM. https://lnkd.in/eFuzN9Bh

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Our Business Development Director spoke to the Financial Reporter about luxury asset lending becoming more mainstream in the short term lending market, the main reasons brokers and their clients use our service, and our message to brokers who have never considered this type of lending. Contact our business development team at [email protected] today to find out more about how luxury asset lending can complement your existing client offering. #BridgingFinance #SpecialistLending #AssetFinance #BridgingLoan #AssetLending #AssetBackedLoans #FinanceSolutions

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Natural capital research 📋 A new report highlights the growing appetite for #naturalcapital investments in institutional portfolios, with half of UK asset owners saying they already invest in natural capital or will do so within the next 18 months. Key findings include: 🌱 50% of UK asset owners are either already investing in natural capital or will do so within the next 18 months 🌧️ 73% of UK asset owners would invest in natural capital to support climate adaptation 📈 59% would allocate up to 3% of assets to natural capital The research, commissioned by Gresham House and carried out by the research division of @mallowstreet, a community for the #institutionalinvestment industry, shows strong backing for the asset class, as investors become increasingly aware of natural capital’s potential to deliver resilient, impactful returns. #forestry #sustainableagriculture #biodiversity https://lnkd.in/enxn9Mqb Ally (Albena) Georgieva Stuart Breyer

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Resurgence of the multi asset fund! The right product for the current backdrop! Flexibility is key. That doesn’t signal the end of MPS, multi asset can and should be considered as a component of MPS which has its own advantages.

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Which US CLO managers lead the pack in charging the highest senior and junior management fees? And how do newer managers compare? In this clopremium article, you will find a table presenting the published average senior and junior management fee breakdown by US BSL #CLO managers. Among the 126 managers listed, 68 charge, on average, over 40 bps, 51 fall within the 30–40 bps range, and 5 charge between 20 and 30 bps. https://lnkd.in/etk_2AYu

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Is the UK facing another bond market implosion? Yields on 30Y Gilts have been rising steadily since September and recently edged *higher* than during Truss' ill-fated 2022 fiscal event, while the pound touched a new 12 month low. I've seen a lot of commentary suggesting this is somehow reflective of the unique set of challenges the UK is facing. I guess you can read the data different ways, but I would argue quite vigorously *it isn't*. At our Macro Breakfast this morning, I made the following points: Slide 1) Most of the move in Gilt yields has simply followed similar moves in global bond markets; the rise in the 30Y Gilt yield has tracked the move in the 30Y UST almost bp by bp since September - the US/UK spread has remained almost completely flat. Contrast this with Truss, when the rate differential blew up by almost 200bps in what was very clearly an idiosyncratic move. Slide 2) For the first 10 months of 2024, GBPUSD followed moves in the US/UK rate differential fairly closely. The two then uncouple from the time of the US election onward. I don't think this is a coincidence; the decline in GBPUSD probably has more to do with Trump's tariffs than anything happening in the UK. The fact that sterling has actually *appreciated* against the euro while losing value against the dollar further suggests this is a greenback story more than a sterling story. The rise in yields still has real consequences, the most obvious being that the chancellor's £10bn fiscal headroom is probably all but gone, which could force some hard policy choices come her March budget. But it is not the damning verdict over UK assets some pundits have made it out to be, and I'm not seeing signs of implosion yet. --- Complete aside, but would you rather hold 30Y USTs at 4.9% or 30Y Gilts at 5.3%? I might be in the minority, but given that the UK... ...has traded at a yield discount to the US for most of the last decade... ...has similar or better inflation outlook... ...has lagged US GDP post-covid... ...faces slower long-term growth potential... ...arguably has the more attractive fiscal profile... ...the relative pricing doesn't make a ton of sense to me.

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