Moneywise First 50 Funds interview: Dirk Philippa, Fidelity Global Property fund

17 July 2019

Dirk Philippa is manager of Fidelity Global Property fund, worth £260m. Edmund Greaves talks to him about smart investment choices, potential pitfalls, and tips for absolute beginners

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 Fidelity Global Property fund Dirk Philippa

What is Fidelity Global Property?

The Fidelity Global Property fund is focused on global property – meaning Real Estate Investment Trusts (REITs), real estate operating companies and developers. These are all listed companies and stocks, and not individual buildings. It’s very important to distinguish that.

Our fund offers daily liquidity [the ability to buy and sell easily] for a relatively illiquid asset class. The stocks are trading around the globe. I typically don’t invest in companies with market caps below $1 billion [companies valued below $1 billion].

What do you look for when buying stocks?

I’m a value investor. That means I like companies that are reasonably cheap, or at least companies where the growth is very good and not priced into the stocks [already accounted for in the share price].

I look at management quality. That involves understanding how they think about allocating capital, how they think about increasing or decreasing their gearing [borrowing], starting developments when the cycle is evolving over the years [the value of property is generally cyclical], and disposing of assets where necessary.

Then what sort of projects do they have? What are the assets that are currently in the portfolio? What is the rental growth that these assets bring?

We focus very much on the size of debts and the companies’ ability to repay capital. This is because we’ve seen in the last downturn that companies with too high development exposure and too high debt typically get into trouble. We want to avoid those write-downs at any cost.

What have you bought recently?

My biggest overweight [higher than average exposure] is in the residential space. Residential used to be equal-weighted up until four or five years ago, then I started to make investments in different residential sub-sectors. One type is ‘manufactured housing’. It’s a very beautiful name for what are effectively trailer parks.

They tend to be in beautiful locations next to rivers, the sea, warm climates, in the US.

We own two companies: Sun Communities, and Equity Lifestyle Properties (ELS). The great thing is that they don’t own the trailers, so in terms of the maintenance, they don’t need to spend anything. They pretty much just own the land. They might put in some concrete and a few toilets, but beyond that, there is not much they need to invest in.

What is your best investment decision?

Manufactured housing stocks that I’ve bought have tripled in the time since I bought them, which is phenomenal. But it’s not just that, it’s also avoiding some areas, such as retail.

I met some companies three or four years ago. If you listened to the landlords and their optimistic predictions, you realise that was quite different from what the retailers were predicting for their store rollouts.

US Mall REITs got hit hard. It’s a major issue in the UK, too.

Many of these companies struggle to survive.

And the worst?

One of my worst stocks was a company that focused on malls in the US. I bought the company in October 2013. It had some issues but it was also trading at a significant discount.

I felt that there was a buffer to buy into the business.

The firm was over-leveraged [indebted], but I had heard positive noises and it seemed that the business understood what had to be done.

Three years later, I realised it was not fundamentally changing. The firm was still doing the same thing, and it bought an additional asset, increasing the leverage. I realised I was wrong. I bought into this business and it was simply a mistake.

I lost 30% from the stock’s peak value. Since then, the company has fallen an additional 90% in value.

What is the first thing you invested in?

When I was 16 or 17, I invested in US dollar options. I bought a small amount – around 200 guilders’ worth [Dirk is from the Netherlands] – and I doubled my money in less than a month. I thought: “This is great!”

Then the second time I put my profits in and added more, 800 guilders, into the options and it doubled again! Then I thought: “I have just found the gold, this is so easy!”

I took 90% of my money out of my bank account, a few thousand guilders, and I put them all into one trade. The option maturity was only six months because that was cheaper. I didn’t have a clue what I was doing but I was making money, so I went ahead.

The exchange rate didn’t move for six months, the options expired, and became worthless. That was such a great lesson for me. I was making money, but without a clue of what the real drivers of the exchange rate were. And in terms of the risk, I was putting all my eggs in one basket.

What is your top tip for beginner investors?

Invest in areas that you understand. You don’t need to fully understand them, but you do need to have an idea. You need to know your exit moments, and doing that successfully over time is typically very difficult if you don’t know the underlying business.

Fidelity Global Property

Launch: 5 Sept 2006
Fund size: £260m
OCF: 0.94%
Yield: 1.59%
Source: Fidelity International, May 2019

The manager behind the fund

Dirk Philippa first joined Fidelity International in 2004 as an equity analyst before quickly progressing to become a portfolio manager. After 18 months at a property-focused investment boutique, Dirk rejoined Fidelity. In 2013, Dirk became the portfolio manager for the Fidelity Global Property (OEIC) and Fidelity Funds Global Property fund (SICAV). In March 2014, he took over responsibility for the Fidelity Global REIT Fund.Prior to joining Fidelity, he worked at Salomon Smith Barney where he worked as an analyst and associate. Dirk gained an MA in economics from the University of Amsterdam, followed by an MBA at INSEAD in 2003.

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Five-year discrete performance of Fidelity Global Property Fund

Year 0-12 months 12-24 months 24-36 months 36-48 months 48-60 months
FGP W Accumulation Shares 21.7 2.08 18.8 2.96 14.1
FTSE EPRA/NAREIT Developed Index (G) 16.39 9.34 17.27 2.82 14.55

Source: Fidelity International, June 2019

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