Q:  Can you talk about the benchmark for the fund?

A: The fund is benchmarked against the MSCI US REIT Total Return Index (RMS). We are mindful of the fact that the index has a certain complexion to it in terms of the property types and while we aim to diversify the portfolio, we also try to run a targeted portfolio of 30 to 50 names. Diversification within that list of names is very important. Our major sectors are retail, office, industrial and multifamily and we also have substantial exposure to diversified companies that might own all of the above. There are some smaller sectors, too. For instance, now we have some good exposure to the hotel stocks as that happens to be a compelling theme right now. There are also companies that specialize in healthcare and storage assets, and other niche property types.

Q:  Recently there has been a trend where people invest in infrastructure, counting as real estate airports or seaports or core properties like mining properties.

A: Yes, we are aware of those companies, though none have found a way into this fund. We have always offered the fund as a commercial real estatedriven investment return and we want to offer investors the kind of return that’s driven by apartment buildings, office buildings, shopping malls, warehouses, and the like.

I think home building, for instance, is a fascinating business and we all know that a lot of money has been made there. I am sure power plants and port assets are interesting and lucrative businesses as well, but as of yet, we have not invested there.

Like many mutual funds, the Real Estate Securities Fund does have some ability to invest in companies that are a little different. We have an ability to put 20% of the fund into companies that don’t fall squarely into our sector but it just hasn’t been a focus of what we do.

Q:  As far as the portfolio construction is concerned, what is the upper limit to holding a security?

A: No investment may be over 7% of the fund without being approved by our investment committee. We could go beyond it if we needed to, but I don’t believe we’ve ever done that.

Q:  What has been your historical turnover?

A: In recent years it has ranged from roughly 90% to 120%, which is a little more then we would like it to be. We aim for the strategy to be in the 60% to 80% range. In the past it’s been a little higher because there has been more volatility in the markets and we have more actively traded the portfolio in an attempt to preserve gains.

Q:  What kind of risks do you monitor and how do you measure them?

A: From a systemic perspective, we view the primary risks as a recession, overbuilding and a prolonged and significant rise in interest rates. Our investment team works on a day-by-day basis together to monitor and mitigate risk in the portfolio. For example, we actively track construction trends in all major markets and property types and reduce our exposure to companies with concentrations in markets we believe may be producing too much supply. Additionally, we eliminate from consideration those companies whose dividends are unsustainable or whose balance sheets are unhealthy.

We have a process by which we are constantly monitoring our portfolios and evaluating price changes and developments in the underlying businesses. We will look to sell on overvaluation. We will look to sell if there has been a change in the business. We’ll sell when we have achieved a price target. We use all of these to manage risk.

We also have an Investment Strategy Committee which meets monthly to review the portfolios, and our firm’s Investment Committee, comprised of the three senior most investment team members, meets regularly to monitor the portfolios, as well as review and set risk management policies and procedures.