Portfolio Manager Perspectives

Jeff Benjamin

Emerging markets emerging as hot real estate play

DEK: Rise of middle class giving rise to property boom, says Cohen & Steers portfolio manager; Brazil tops the list

May 10, 2011 @ 11:16 am

By Jeff Benjamin

The explosive growth of the size of the middle class in many emerging-markets countries is creating a huge opportunity for foreign real estate investing, according to Scott Crowe, a global portfolio manager at Cohen & Steers Inc.

“This is one of the most exciting areas to invest in right now,” he said. “And it's the most direct way I can think of to get exposure to the emerging consumer.”

According to Mr. Crowe, there are currently 500 million people in emerging-markets countries classified as middle class. And the number is set to double over the next five years.

Cohen & Steers, which has $38 billion under management, including $15 billion invested in real estate strategies, expanded into the emerging-markets real estate space with the March launch of the Cohen & Steers Emerging Markets Real Estate Fund Ticker:(APFAX).

“We have been looking at this kind of strategy for about three years,” Mr. Crowe said.

The fund, which is currently exposed to 12 emerging-markets countries, has a 30% allocation to Brazil, followed by 15% in China and 10% in India.

The key to the strategy, he explained is finding the best blend of growth potential and opportunities.

“You can't draw a straight line between macro GDP growth and equity returns, because there are a lot of factors to consider,” he said. “We're looking for companies that cater to the emerging consumer. We also want the local government to be generally on our side, and we're looking for measures that support consumer credit.”

Thus, even though China, with more than a billion people, has more growth potential, Brazil presents more-attractive investment opportunities when it comes to middle-class real estate growth.

“Brazil adds up as the greatest measure of all the variables we're looking for,” Mr. Crowe said. “China has better growth, but there is a lot of government interference.”

The fund invests primarily in property companies, but real estate investment trusts are expected to become a larger part of the portfolio as more REITs are introduced.

For example, both China and Mexico currently have just one REIT representing local real estate properties.

Property companies make up 85% of the fund right now, but Mr. Crowe expects the allocation to REITs to grow with the continued expansion of the product offerings.

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.


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