AEW Capital Management is located in Boston, the second biggest hedge fund cluster in the Northeastern U.S. The firm was founded in 1981, and focuses on REITs and other real estate-related investments. The fund is managed by Jeffrey Furber.
Due to the fact that it’s important to follow hedge fund sentiment for its market-beating potential, let’s take a quick look at Furber and AEW Capital’s top five stock picks heading into Q3. The fund’s second 13F was just filed with the SEC, which indicates a moderate level of turnover in the hedge fund’s $4-plus billion equity portfolio.
The fund’s top pick was Simon Property Group Inc (NYSE:SPG), with a $483.4 million position, slightly down from the $508.4 million stake at the end of the previous quarter. A significant number of other hedgies are also bullish on this retail REIT, including Ken Heebner’s Capital Growth Management (left), Clint Carlson’s Carlson Capital and Dmitry Balyasny’s Balyasny Asset Management.
Shares of Simon Property are flat on the year, and aren’t priced particularly attractively at the moment. Furthermore, a dividend yield beneath 3% isn’t very impressive, and a +100% payout ratio indicates that income investors shouldn’t expect any increases in the near future. Most likely, this was a merger arbitrage play for AEW Capital, as the REIT just agreed to form a joint venture with McArthurGlen in early June. Simon Property Group Inc (NYSE:SPG) shares go ex-dividend on August 14th.
Equity Residential (NYSE:EQR), meanwhile, is a $257 million position–nearly flat from Q1–for the hedge fund. As its name implies, Equity Residential is a residential-focused REIT, and shares are down nearly 6% in 2013. Like Simon, Equity is on the verge of a major business transaction, this time a joint sale of its DeWAG Management GmbH with AvalonBay Communities Inc (NYSE:AVB).
A buyer is not yet known, but any sale will boost liquidity at Equity Residential, freeing up more capital for a company that pays a 3% yield on just a 32% payout. Equity Residential (NYSE:EQR) is a fine No. 2.
Public Storage (NYSE:PSA) and Prologis Inc (NYSE:PLD) are the next two largest positions in Furber and AEW Capital’s equity portfolio, each worth more than $210 million. The fund maintained its bullishness in both REIT-structured companies last quarter, with a slight edge to Public Storage. This self-storage REIT is up over 11% year-to-date, while Prologis, a transportation and logistics REIT, is up close to 4%.
Boston Properties, Inc. (NYSE:BXP) comes in at No. 5, with a $205 million position. Jim Simons’s Renaissance Technologies and Ken Griffin’s Citadel Investment Group are a couple hedge fund stalwarts who sit behind this office REIT. Shares are slightly down in 2013, but it’s worth paying attention if top-tier funds are long.
With that in mind, we’ll continue to watch Simon Property Group Inc (NYSE:SPG) and Equity Residential (NYSE:EQR), and you should too. The sheer size of AEW Capital Management’s equity portfolio demands it.