Mark McAllister has had a busy couple of years. The top-performing property manager has seen his former closed-ended LMP Real Estate Income fund come under attack from activist investors, a move to an open-ended structure and an overhaul of the investment approach.
His renamed ClearBridge Real Estate Opportunities fund sits right at the top of the Property – Real Estate sector, with a 62.5% return that is well ahead of the next best, Cohen & Steers Real Estate Securities, up 45.5%.
That's an impressive feat against the backdrop of agitation from renowned activist Bulldog Investors. It disclosed a stake in the former LMP Real Estate Income fund at the beginning of 2015, protesting at the double-digit discount at which the shares traded to net asset value (NAV).
After building up its holding, Bulldog demanded seats on the trust’s board and a tender offer. After a protracted battle, both sides settled on switching the fund to an open-ended structure, which came into force in June last year and had the same effect of removing the discount.
That removal of the discount is not reflected in performance figures, which over the period prior to last summer are based on LMP’s NAV returns.
Alongside the new structure and name, the ClearBridge Real Estate Opportunities fund has a different focus, on total return rather than just income, which has entailed a fair degree of portfolio reorganization.
‘We sold all of our preferred stock holdings, as these were owned purely because they had relatively high dividend yields but had little capital appreciation potential,’ McAllister said in the fund’s latest annual report.
‘In addition, we exited our residential mortgage real estate investment trust positions, as well as trimmed or sold holdings that had relatively high dividend yields but that we thought offered limited upside potential. We initiated positions in common stocks in sectors such as office, retail, apartments, hotels and cellphone towers that we believed offered superior total return potential to the securities we had sold.’
Performance since the switch has taken a dip along with the broader property sector, as income-producing assets have come under pressure amid fears of an upsurge of inflation due to president Donald Trump’s infrastructure spending and tax-cutting agenda.
But McAllister has also been forced to contend with redemptions, including Bulldog's exit, following the move to the new structure, selling holdings to provide liquidity. The fund now stands at just $47.6 million, a third the size of the LMP trust’s $150 million market cap in early 2015.
McAllister may be emerging from a turbulent time for the fund, but he is at least doing so from a position at the top of his sector.
It’s a different story for his $660 million ClearBridge Tactical Dividend Income fund, languishing at the bottom of the equity income sector over three years with just a 7.2% return, weighed down by a heavy allocation to energy master limited partnerships, hit hard in 2015 as the oil price tumbled below $50 a barrel, squeezing shale oil and gas producers.
Top 10 real estate managers by three-year total returns
|Rank||Name||Fund||Total Return (%)||Manager Ratio*|
|1 year||3 years||5 years|
|1/81||Mark McAllister||ClearBridge Real Estate Opportunities||23.6||62.5||96.6||0.7|
|2/81||Burland East||Altegris/AACA Opportunistic Real Estate||30.4||44.9||78.9||0.3|
|3/81||Mihir Worah||PIMCO RealEstateRealReturn Strategy||19.6||44||70||0.4|
|4/81||Bruce Garrison & Matthew Werne||West Loop Realty||15.7||42.1||73.4||0.5|
|6/81||Tom Bohjalian & Jason Yablon||Cohen & Steers Realty Shares|
Cohen & Steers Real Estate Securities
Cohen & Steers Institutional Realty Shares
|8/81||Robert W. Gadsden||Alpine Realty Income & Growth||20||40.4||75.2||0.5|
|9/81||Dean Frankel & Eric Rothman||AMG Managers CenterSquare Real Estate||15||39.5||71.1||0.8|
*The manager ratio is the average information ratio of the funds the manager has run in this sector over the past three years. A positive figure means the manager has outperformed their benchmark(s).