Specialist data can boost alpha in combination with fundamental process

As alpha in global reits funds has generally reduced over the past 5 years as a result of less trending and less directional markets, implementing more data-driven processes into market analysis, stock pricing and portfolio construction has become more important for fundamental managers.

This note aims to illustrate potential benefits of combining Kania’s specialist factor data for global real estate securities markets (KAFS: Kania Aggregate Factor Score and information of Kania Global Real Estate CAI Index constituents, alt-beta index based on KAFS data) as applied to global reits funds managed by main reits specialists.

Kania’s data-driven factor metrics aim to capture economic growth prospects of global listed real estate companies at a conservative risk profile. Evaluation of potential benefit illustrated here is based on “information contribution”-only framework where each fund’s/manager’s process as represented by fund holdings (SEC filings) is not altered and only potential benefit of including KAFS data is measured. This is done based on a simple “overlap portfolio”; IF the same stock is included BOTH in fund holdings and the Kania alt-beta index at the SAME TIME the weights are combined, otherwise only the fund’s weight is included in the “overlap portfolio” (weights are redistributed to 100%). This implies that the same signal/decision is made at the same time by the two separate processes, fundamental and systematic. When there is alignment, it can drive higher conviction in stock picking and portfolio construction and when there are opposing signals, it can potentially improve the timing of stock selection throughout the cycle.

Kania calculates and provides KAFS data for the global reits universe daily (EOD) which gives analysts ongoing information integration and monitoring of migration profiles of individual stocks (indication of improving/ deteriorating stock profile) based on Kania’s systematic data-driven process.

The chart below illustrates the net benefit based on this simple “overlap portfolio” for global reits funds with at least 70 holdings over a 5.5yr period from Jan’20-Jun’25. As illustrated, KAFS data can contribute to improve performance irrespective of individual manager’s investment process by reinforcing conviction, timing of decisions and portfolio construction. In this simple example the net benefit is between ~100-200bps of annualised additional total return over the period, also with a nominal improvement in risk profile. Higher integration and reliance on data can boost outcomes in global reits portfolios without altering specific fundamental processes.

For information about KAFS data please contact info@kaniaadvisors.com