Real Estate-Who owns Simon Properties?

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       The answer is at least these five active managers within the real estate space. This is the top and largest holding for the managers listed below.

  • American Century Investments Real Estate Fund
  • Aston-Harrison Real Estate Fund
  • Cohen and Steers Real Estate Fund
  • Eaton Vance Real Estate Fund
  • DWS-RREEF Real Estate Fund

            Simon Property Group, Inc.( Simon Property), is a self-administered and self-managed real estate investment trust (REIT). The Company owns, develops and manages retail real estate properties, which consist primarily of malls, Premium Outlets, The Mills, and community/lifestyle centers.

            It has been a flat performer for the last year so all these five active managers who should be finding potentially outperforming REITS, hold this under performing REIT in eerily close portion to that of the following ETFs.

  • iShares Cohen & Steers REIT ETF
  • iShares U.S. Real Estate ETF
  • iShares Real Estate 50 ETF
  • Schwab US REIT ETF
  • SPDR Dow Jones REIT ETF

            They ALL have as their top holding Simon Properties. Zenith does not have anything analytically against Simon Properties but wonder why these managers all make it their top holding. It makes sense for the ETF world to look similar as they are constructed around a benchmark; however while mutual funds need to state a benchmark they don’t have to hug it. They can seek more unique and less crowded ideas to add value to the portfolio. 

            While there are differences in a few names at the meaningful percentage level as well as the weighting at the security and sector level, they all are very REIT benchmark focused for the most part.


       This is just a short pre-holiday snippet to get you thinking about your managers uniqueness or if they simply buy what most in their space are holding. We will apply much more definitive analytical firepower to pick apart these managers and to issue official sell recommendations in Dec and into the New Year where they are warranted. Why pay for Simon Properties with these managers when you can simply buy an ETF?


Tom Koehler-CIO



Global bonds vs Emerging market debt

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Zenith Portfolio Strategies- Global Bond Insight

We discussed in a prior blog Emerging Market Debt and focused in these areas.

  • Asset class risk and reward characteristics
  • ETF comparison(passive)
  • Attributes we look for in a fund

This piece will compare a fund within the Global Bond space to a fund in Emerging Markets.

The opportunity set that spans both areas include:

            Emerging Market Sovereign Debt-The debt issued by the Governments of EM countries such as Indonesia and Turkey.  These bonds can be denominated in dollars or the countries local currency.

            Emerging Market Corporate Debt- These are the bonds of corporations within these countries and also can be denominated in dollars or the local currency. This is an expanding bond market.

            Developed Sovereign or Corporate Debt-These bonds are in familiar countries that are fully developed such as Sweden, Germany and Japan.

            Currencies-As mentioned, these bonds can be dollar or non-dollar denominated and this is a major opportunity set as the currency market may be the least managed segment of the capital markets and may be able to provide added value in a global bond portfolio.

Emerging Market manager

  • They hold a flexible mandate to invest in dollar or non-dollar debt.
  • Their holdings include developed Asia-ex Japan, Africa, Asia Emerging and Latin America-It is difficult to be a pure Emerging Market bond manager without the inclusion of developed ex-US and Europe.
  • They hold a blend of sovereign bond, Quasi-Sovereign and Corporate debt.
  • Top countries-Brazil 14%, Indonesia 13%, Nigeria 13%, Russia 10%
  • Currency positions range from US $ to the Brazilian Real.
  • Currency decision is made at the bond selection level and not made as an outright hedge.
  • Manages duration.


Global Bond Manager

  • They hold a flexible mandate to invest in dollar or non-dollar debt.
  • Their holdings include developed Asia-ex Japan, Africa, Asia Emerging Latin America and periphery Europe -It is difficult to be a pure Emerging Market bond manager without the inclusion of developed ex-US and Europe.
  • They hold a blend of sovereign bond, Quasi-Sovereign and Corporate debt.
  • Top countries-South Korea 16%, US 14%, Ireland 14%, Hungary 6%
  • Currencies range from US $ to Malaysian Ringit and the Polish Zloty.
  • Currency decision is made at the bond selection level but they are able to hedge out into another currency.
  • Manages duration.

Our observations;

  • They possess a similar mandate and profile.
  • This leads us to believe that the opportunity set globally is seen similarly by both managers.
  • Performance and risk adjusted returns may converge.
  • They differentiate by country, credit and duration management.
  • The differentiating factors that might lead to a placement in one over the other include;


a)      risk control at the country and security selection level

b)      risk control at the duration and credit level

c)      risk control at the position liquidity level-Nigeria’s debt market is not the US Treasury’s


            The choice becomes very qualitative in the global bond space for the advisor. At Zenith we need to be comfortable with the managers ability in an area of the capital markets that requires a reasonable amount of abstract thinking as monetary policy is a fluid and many times an elusive animal.

            We suggest you ask a lot of questions and here are just a few.

  • Where does your team see value prospectively in the global bond market?
  • How liquid are the markets you invest and how liquid are the instruments you utilize?
  • What is the likely range of interest rate exposure in their portfolio?
  • What is the likely range of overall credit quality in their portfolio?
  • How much can one country or specific debt issue take up in the portfolio?
  • How do they balance opportunistic ideas with prudent risk control.

            Once your investment committee has a handle on the complexities of the global debt market and is comfortable with a manager and their process, we suggest that a piece of your client’s portfolio can be allocated to this asset class.


Tom Koehler, CIO


GDP, Unemployment and the Fed

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 Zenith Portfolio Strategies Economic update


            The quarterly 2.8% 3rd quarter growth rate is encouraging although inventories contributed 1% to that and so already some economists such as  Jan Hatzius at Goldman are revising downward their 4th quarter numbers since inventories are not likely to be a major contributor again in the very next quarter.

           A closer look at other components while still positive is somewhat sobering.

1. Year over year  3rd quarter comparison for the last three years;

  • 2013-1.6%
  • 2012-3.2%
  • 2011-1.5%
  • 2010-3.0%

2. Consumption is approximately 70% of GDP. Here are the year over year numbers.

  • 2013-1.8%
  • 2012-2.2%
  • 2011-2.5%
  • 2010-2.0%                                                                                             


Total non-farm payroll jobs created were well above estimates.

  • Jobs created 204,000
  • Unemployment rate increases from 7.2% to 7.3% due to the next point
  • Labor participation rate 62.8% a low level that has not been seen since 1978

            While the increase in jobs is a good sign the lower labor force participation rate is a very serious worry to us.  The GDP numbers and employment picture lead us to believe that any taper would be minimal whether it starts in Dec, March or later next year. Also, keep in mind that a taper does not equal a net stoppage. It simply means that instead of driving 140mph , they are potentially going to slow to 120mph. That is still speeding.  


Tom Koehler-CIO

THE FED and Taper Tantrum

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We were going to hold off on a more substantial piece until later this week until we came across an article that we could not pass up sharing with our readers. As you all know, when the Fed announced it would being at some point reducing QE or the purchase of Treasury and Mortgage Backed Securities, the market had a “tantrum” and drove fixed income yields higher. This included Treasuries, Mortgage Backed Debt as well as Emerging Market bonds. It was a rough time for long only duration heavy bond managers and investors.

Currently the thresholds for a taper are 7% unemployment(currently 7.2%) and for an actual increase in the Fed Funds rate, the rate of unemployment should be around 6.5%.  It seems then that the short end of the curve will remain anchored for now.

It seems as though 2% is the number for inflation and since it is “comfortably” under that at 1.2%, they have room to continue the current rate of purchases.

The guessing game on a taper continues daily as economic numbers are analyzed and the words of the ever consistent Fed officials are listened to by the minute to determine if the doves or the hawks are going to win.

The article from “zero hedge” cited Jan Hatius a top economist at Goldman who believes that Taper could begin in December based on two separate studies from two officials at the Fed. Basically, they need to taper based on new models but to keep the tantrum under control they will likely announce a lower threshold for increasing the Fed Funds rate to 6.% or even 5.5% unemployment.

The most basic conclusion we have is that they will keep short rates low to lessen the severity of the potential reduction in asset purchases. We do believe that the economic growth rates and labor force issues do not give the Fed much room to reduce purchases much even when they begin.

Lastly, if they are correct in the threshold 6% unemployment as the new level before raising short term borrowing costs, we believe it could be beyond 2015 before they do.

The bond battle is in the early innings.


Tom Koehler, CIO