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Effective October 1, 2016, the Aston Funds family has been integrated into the AMG Funds family of mutual funds. We are excited about the opportunity to serve you with more than 100 investment options spanning the asset class spectrum.

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Apr 27 2011

1st Quarter 2011 Commentary - ASTON/Fortis Real Estate Fund

1st Quarter 2011 Commentary

The Fund strongly outperformed its MSCI US REIT Index benchmark during the quarter. Both sector allocation and stock selection contributed to the relative performance, with the lion’s share of the outperformance the result of superior stock selection. The absence of any Net Lease holdings accounted for the bulk of the sector contribution, with an underweight position in Lodging and overweight stakes in Self-Storage and Canada also aiding returns.

The two biggest individual stock contributors were Brookdale Senior Living and Douglas Emmett. Brookdale benefitted from a positive fourth quarter 2010 earnings release and 2011 guidance provided by management. The acquisition frenzy that has transpired of late in the Healthcare sector undoubtedly helped the stock as well, as capitalization rates compress.

Portfolio Highlights

The Fund's largest overweight position continues to be in Malls, as it has been for a while now.  We think valuations continue to look attractive, especially for the big players in the sector—Simon Property Group and Taubman Centers—which the portfolio is overweight relative to the benchmark as well. Operating metrics are trending very well for the group as a whole. A holding in Tanger Factory Outlet also continues to witness solid operating fundamentals. Sales for off-price, factory outlets should continue to perform well for the foreseeable future as bargain shopping may endure for quite some time as the slow recovery unfolds and consumers continue to stretch their spending dollars.

We are maintaining a more modest overweight position to Shopping Centers, where operating fundamentals have been more difficult due to meaningful vacancy levels that are only slowly easing. We think the fundamentals have troughed, however, given sequential improvement for the past few quarters. During the quarter, we added Regency Centers and sold Kimco from the portfolio. Regency possesses one of the highest quality shopping center portfolios among public companies, and its valuation appears more appealing than that of Kimco's.  We expect better leasing prospects for Regency with their higher level of newer and bigger-box spaces and the demand for such space in the market today. The Fund also participated in the initial public offering (IPO) of American Assets Trust early in the year. The company possesses an attractive, high quality portfolio of primarily retail shopping centers, office, and apartment assets in California, Hawaii and Texas. Beyond the high quality of the assets, the pricing of the IPO was attractive, with shares being offered at a compelling discount to net asset value.

The continued strong relative performance of Canadian property has lessened its attractiveness in our eyes. We have been reducing the portfolio's stake to this area since last year. Macroeconomic and operating fundamentals remain healthy, but modest earnings growth prospects combined with current valuation levels, have lessened its appeal versus the U.S. As a result, Riocan was sold during the quarter. The valuation of this large Canadian shopping center company became too rich after the strong recent performance from its shares and the Canadian REIT universe overall. 

Finally, Healthcare remains a large underweight position in the Fund. The sector is deemed defensive in nature and performance tends to lag those areas with more leverage to an improving economy. Long lease terms make it difficult to push rate, even as fundamentals improve.  Overall, we think the relative valuation for the sector is unappealing and that companies must rely too heavily on acquisitions for meaningful earnings growth. In fact, we have witnessed a tremendous level of acquisition/merger activity so far this year, with more expected to follow.


Consumer confidence fell a bit during the quarter on the back of continued geopolitical risk in the Mideast and Libya, the earthquakes/tsunami/nuclear fears in Japan, a continued slow jobs recovery here in the U.S., and meaningful rise in the price of gasoline. Despite this backdrop, the positive tone we have been espousing for the past few months continues. The recovery is progressing, and while it has been slower than anyone would like, the employment picture continues to look progressively better. This is the key, given that as jobs go, so goes the recovery. Furthermore, signs seem to point to a recovery that is beginning to be self-sustaining, as opposed to merely being stimulus driven.

From a property perspective, improvement in operating fundamentals continues virtually unabated across all property sectors. Thus, we continue to have a favorable outlook on the North American listed property sector. As the economy moves from recovery mode to one of expansion, US REITs are expected to see cash earnings growth of close to 10% in both 2011 and 2012. As always, dividends add to the attractiveness of the sector. With meaningful yield levels today, and many companies at or near their statutory minimum payout requirements, we expect dividend rate hikes to be healthy going forward as well.  

Fortis Investment Management

As of March 31, 2011, Brookdale Senior Living comprised 1.14% of the portfolio's assets, Douglas Emmett – 4.17%, Simon Property Group – 12.59%, Taubman Centers – 4.39%, Tanger Factory Outlet – 1.66%, Regency Centers – 2.20%, and American Assets Trust – 0.42%.

Note: Real estate funds are non-diversified and may be more susceptible to risk than funds that invest more broadly. Risks include declines from deteriorating economic conditions, changes in the value of the underlying property, and defaults by borrowers. Investing in foreign markets also entails the risk of social and political instability, market illiquidity, and currency volatility.

Before investing, carefully consider the fund’s investment objectives, risks, charges and expenses. Contact 800 992-8151 for a prospectus containing this and other information. Read it carefully. Aston Funds are distributed by BNY Mellon Distributors Inc.


Aston History (212 KB, PDF)
Capabilities Brochure (2 MB, PDF)
Aston Style Box (46 KB, PDF)
Aston Subadvisers (490 KB, PDF)

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