Global Real Estate SecuritiesA_

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1 31 MARCH 2016 Global Real Estate SecuritiesA_ Quarterly Review Composite Performance Periods Ending 31 March 2016 Performance Highlights Return % Qtr 1 1 Year 3 Year Since Inception 01 Jun 11 Global Real Estate Securities Gross of Fees FTSE EPRA/NAREIT Global Annualized Returns Source:, MSCI Inc. Returns calculated in U.S. dollars. The value of investments can fluctuate. Data assumes reinvestment of dividends and capital gains. Data reflects past performance. Past performance does not guarantee future results. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used to create indices or financial products. This report is not approved or produced by MSCI. Quarterly Top Relative Contributors and Detractors Contributor (%) Mori Hills REIT Investment Corp 0.29 Daito Trust Construction Co Ltd Detractor (%) Forest City Realty Trust Inc Mack-Cali Realty Corp In a volatile quarter, global real estate stocks posted solidly positive returns and outperformed the broader global equity market. Real estate stocks in North America and the Asia/Pacific region delivered the best returns, while European property stocks lagged. Stock selection in North America and Europe detracted the most from performance compared with the benchmark. An underweight position and security selection in emerging markets also weighed on relative results. Security selection in Japan and Hong Kong added value during the quarter. At A Glance Inception: 01 June 2011 Benchmark: FTSE EPRA/NAREIT Global AUM: $ million USD Realty Income Corp 0.28 HCP Inc 0.24 Japan Real Estate Investment Corp 0.23 China Resources Land Ltd Public Storage China Overseas Land & Investment Ltd Supplemental Information Attribution Analysis One Year Ending 31 March 2016 Cumulative Excess Return % Source: FactSet Supplemental Information Sector Allocation Security Selection Currency Effect Total Effect FOR NON-U.S. INSTITUTIONAL USE ONLY 1

2 Investment Philosophy We believe that top-down analysis of geographic regions and property sectors combined with bottom-up security evaluation of real estate companies will lead to outperformance in a variety of market environments. Key Tenets Dynamic real estate market environment demands ability to shift allocations to geographic regions and property sectors to adjust the economic sensitivity of the portfolio. Top-down analysis requires evaluating a broad range of macro factors in order to effectively and accurately assess opportunities. Investing in companies with attractive relative valuations and/or superior growth provides broader opportunities to generate excess returns. Goal Global Real Estate Securities seeks to outperform the FTSE EPRA/NAREIT Global Index by 1.5% to 2.5% over a market cycle. Risk Guidelines Position Size: Target 1% to 5% active Country Allocation: +/- 200 basis points of benchmark weight Cash exposure: Maximum 3% Sustained experience and access within real estate industry enhances company-level research. Investment Process Public Real Estate Universe Regional/Property Sector Analysis Macro-economics: Economic outlook Policy expectations Real estate-specific Valuation assessment Real estate market fundamentals 1 Company Research Asset quality Management quality Balance sheet strength Earnings power Valuation 2 Portfolio Construction Combine top-down allocation to geographic regions and property sectors with bottom-up security selection to construct portfolio. Global Real Estate Securities Holdings FOR NON-U.S. INSTITUTIONAL USE ONLY 2

3 Portfolio Characteristics Global Real FTSE EPRA/NAREIT Characteristics Estate Securities Global Weighted Average Market Capitalization $15.2 B $14.1 B Median Market Capitalization $5.2 B $2.0 B Price to Earnings Ratio, Historical 1 Year 16.5x 15.0x Price to Earnings Ratio, Forecasted 1 Year 26.4x 22.7x Price to Book Ratio, Historical 1 Year 1.8x 1.4x EPS Growth, Historical 1 Year 29.7% 25.2% EPS Growth, Forecasted 1 Year -1.8% -0.2% Cash 0.6% N/A Turnover, Trailing 1 Year 262% N/A Number of Holdings Number of Countries Source: FactSet Investment Team 2 Portfolio Managers - Steven Brown - Steven Rodriguez 2 Investment Analysts 2 Client Portfolio Managers - Peter Hardy, CFA - Matt Oldroyd, CFA Located in New York Top 10 Holdings Holding Country Industry Assets (%) Simon Property Group Inc US Real Estate Investment Trusts 6.53% AvalonBay Communities Inc US Real Estate Investment Trusts 4.31% Boston Properties Inc US Real Estate Investment Trusts 3.24% General Growth Properties Inc US Real Estate Investment Trusts 3.11% Unibail-Rodamco SE France Real Estate Investment Trusts 2.85% Equity Residential US Real Estate Investment Trusts 2.76% Prologis Inc US Real Estate Investment Trusts 2.58% Hong Real Estate Management & Sun Hung Kai Properties Ltd Kong Development 2.42% Extra Space Storage Inc US Real Estate Investment Trusts 2.36% Digital Realty Trust Inc US Real Estate Investment Trusts 2.33% Total 32.50% Equity holdings are grouped to include common shares, depository receipts, rights and warrants issued by the same company. Portfolio holdings subject to change. Top 10 Overweights Holding Global Real Estate Securities Weight (%) FTSE EPRA/NAREIT Global Weight (%) Overweight (%) AvalonBay Communities Inc Simon Property Group Inc General Growth Properties Inc Acadia Realty Trust Boston Properties Inc STORE Capital Corp Extra Space Storage Inc American Campus Communities Inc SL Green Realty Corp Equinix Inc Source: FactSet Equity holdings are grouped to include common shares, depository receipts, rights and warrants issued by the same company. FOR NON-U.S. INSTITUTIONAL USE ONLY 3

4 Country Allocation: Top 10 Over/Underweights Portfolio Weight vs. Benchmark Country Global Real Estate Securities (%) FTSE EPRA/NAREIT Global (%) United States France Germany Philippines Canada Hong Kong Singapore Indonesia Spain Sweden Thailand Austria Netherlands Malaysia Belgium United Kingdom Mexico China Switzerland South Africa % Source: FactSet Quarterly Top Relative Contributors and Detractors by Country Contributor (%) Japan 0.11 Hong Kong 0.09 Sweden 0.05 Austria 0.02 Ireland 0.02 Supplemental Information Detractor (%) United States Germany Singapore Canada Brazil FOR NON-U.S. INSTITUTIONAL USE ONLY 4

5 Risk-Adjusted Performance Three-Year Risk-Adjusted Performance vs. ea Global REIT Universe vs. FTSE EPRA/NAREIT Global Net Index, Citigroup 3-Month T-Bill 0 Excess Returns Tracking Error Information Ratio Sharpe Ratio 25 Percentile Rank Median Global Real Estate Securities Excess Returns Tracking Error Information Ratio Sharpe Ratio Manager Percentile Rank Median Source: evestment Analytics Excess returns are gross of fees. Number of products in the universe was 61. Available Vehicles Separate Account Available in U.S. and certain non-u.s. countries FOR NON-U.S. INSTITUTIONAL USE ONLY 5

6 Quarterly Commentary Market Environment Global property stocks advanced by approximately 5% for the quarter, outpacing the flat to slightly negative returns of the broad global equity indices. However, the solid overall return for global real estate stocks masked some significant intra-quarter volatility. Property stocks fell sharply early in the quarter amid concerns about slowing global economic growth. After bottoming in mid- February, real estate stocks rebounded significantly through the end of the quarter as increased economic stimulus from many of the world s central banks eased investor concerns about global economic weakness. From a regional perspective, real estate stocks in North America and the Asia/Pacific region delivered the best returns. European property stocks generally underperformed as strong returns in Germany and Switzerland were offset by declines in Spain and the U.K. Property stocks in emerging markets were mixed markets in Latin America and Africa/Middle East fared well, while declines in India and China led to weaker returns in emerging Asia. Portfolio Summary Thanks to its defensive positioning, the portfolio outperformed during the broad decline in global property stocks early in the quarter, but it gave back that performance and more during the subsequent rebound in global real estate securities. For the quarter, stock selection in North America and Europe detracted the most from performance compared with the benchmark. An underweight position and security selection in emerging markets also weighed on relative results. Security selection in Japan and Hong Kong added value during the quarter. Stock Selection in the U.S. and Europe Detracted Security selection among U.S. and European real estate stocks detracted the most from performance compared with the benchmark. New Jersey-based office REIT Mack-Cali Realty was a leading detractor. Concerns about the company s aboveaverage leverage and a slowdown in office leasing activity in the broader New York City metropolitan area including the company s core market in New Jersey led to a decline in the stock. The portfolio management team chose to eliminate the stock from the portfolio during the quarter. In Europe, one of the most significant detractors was German residential property owner Grand City Properties. After a strong period of outperformance in late 2015, the stock gave back some performance in the first quarter after announcing a convertible debt offering. The portfolio management team took advantage of the weakness in the stock to increase the portfolio s position during the quarter. Although stock selection was generally favorable in Asia, several of the biggest detractors from performance were Asian property stocks. Most notably, Chinese property developers China Resources Land and China Overseas Land & Investment weighed on relative results in the first quarter. Both companies were adversely affected by a further slowdown in the Chinese economy and tighter housing policies in selected Chinese cities. Stock Selection in Asia Added Value Security selection in the Asia/Pacific region, particularly in Japan and Hong Kong, aided relative results during the quarter. Japanese rental housing developer Daito Trust Construction was a leading contributor to both absolute and relative performance. The company enjoyed strong growth in new orders resulting from discounted pricing and a stronger, more efficient sales force. As of the end of the quarter, the stock remained a portfolio-only position. Among the portfolio s U.S. holdings, one of the leading contributors was triple-net-lease REIT Realty Income. The defensive nature of the triple-net-lease sector helped the stock outperform amid the extreme market volatility during the quarter. Realty Income also reported stronger-than-expected earnings. The portfolio management team eliminated the stock from the portfolio during the quarter based on valuation. U.S. technology REIT Digital Realty Trust, which owns data centers, was another leading performance contributor. The stock benefited from a secular tailwind of data center outsourcing, driven in large part by exponential growth in cloud computing. Although the management team took some profits during the quarter, Digital Realty remained an overweight position in the portfolio. It s also worth noting that avoiding U.S. health care REIT HCP during the quarter was another positive investment decision. The stock fell sharply as one of the company s largest tenants faced declining profitability, calling into question the stability of HCP s rental income stream. Portfolio Changes Notable new holdings in the portfolio during the first quarter included Japanese office REIT Mori Hills REIT Investment and Brazilian shopping mall REIT BR Malls Participacoes. Mori was trading at a discounted valuation after a follow-on stock offering, providing an attractive entry point. The stock subsequently rallied and was one of the portfolio s leading contributors during the quarter. BR Malls is one of the largest owners and operators of retail properties in Latin America and offers an attractive dividend yield. In addition to Mack-Cali Realty and Realty Income, notable eliminations from the portfolio in the first quarter included U.S. apartment owner Essex Property Trust and British property developer Land Securities Group. Positioning for the Future Although fundamentals in the global property markets generally remain favorable, the portfolio management team sees some regional variability. In the U.S., real estate stocks are currently trading at approximately fair value relative to the underlying net asset values, but the management team sees value in certain sectors of the market. One example is Class A regional mall FOR NON-U.S. INSTITUTIONAL USE ONLY 6

7 owners in the retail sector, many of which are trading at discounted valuations. The management team also favors the apartment sector, which is poised to benefit from positive supplyand-demand dynamics and continued employment growth, and the technology sector, where continued demand for data center outsourcing should be positive for performance going forward. The portfolio has shifted to a modest underweight in Europe, with an emphasis on the Continent as the European Central Bank continues to expand its economic stimulus measures, including QE and negative interest rates. In addition, consumer spending in the eurozone has shown recent signs of improvement. In the U.K., the portfolio is notably underweight the London office sector, where demand could be materially affected if the country votes to exit the European Union this summer. The portfolio s U.K. holdings are primarily focused on more defensive businesses such as student housing and self storage. The Asia/Pacific region represents another underweight position in the portfolio as economic prospects and adverse real estate policies serve as headwinds to growth. In particular, the portfolio holds an underweight position in China because of slowing growth and concerns about excess supply. However, the management team has become constructive on selected Asian emerging markets, such as the Philippines and Indonesia. In the Philippines, stronger demand in the residential sector and greater clarity regarding the upcoming presidential election should provide a favorable backdrop for performance, while Indonesia has undertaken several policy initiatives that should spur greater demand for real estate. The portfolio generally remains underweight elsewhere in emerging markets. Despite discounted valuations, many emerging markets property stocks face challenging structural hurdles in their respective countries. FOR NON-U.S. INSTITUTIONAL USE ONLY 7

8 Composite returns reflected in supplemental information are gross of investment management fees. Sector weights, portfolio characteristics and holdings are of a representative account in the composite. Holdings are current as of the date indicated, are subject to change and may not reflect the portfolios current holdings. Portfolio construction guidelines document operational policies and not necessarily investment restrictions imposed on management of the strategy. Supplemental information complements a compliant composite presentation which can be found on our Web site. Material presented has been derived from industry sources considered to be reliable, but their accuracy and completeness cannot be guaranteed. Opinions expressed are those of the portfolio investment team and are no guarantee of the future performance of any portfolio. Nothing in this document should be construed as offering investment advice. Please note that this is for informational purposes only and does not take into account whether an investment is suitable or appropriate for a specific investor. For purposes of compliance with the Global Investment Performance Standards (GIPS ), the Firm is defined as American Century Investment Management, Inc. ( ACIM ). ACIM claims compliance with the Global Investment Performance Standards (GIPS ). The Global Real Estate Securities composite includes portfolios that typically invest in REITs and companies engaged in the real estate industry globally. Index futures (and currency forwards and futures, where applicable or appropriate) are occasionally used to equitize cash and manage portfolio risk. Other derivative instruments may be used, as allowed, as part of the investment strategy. Returns are calculated and stated in U.S. dollars. The return may increase or decrease as a result of currency fluctuations. No offer of any security is made hereby. 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Past performance is no indication as to future performance. Any investment is done at the investor s own risk. American Century Investment Management (UK) Limited is authorised and regulated by the Financial Conduct Authority. American Century Investment Management (UK) Limited is registered in England and Wales. Registered number: Registered office: 30 Haymarket, London SW1Y 4EX. To receive a complete list of composites and/or a GIPS compliant presentation, contact: 4500 Main Street Kansas City, MO Toll Free: Fax: Haymarket London, SW1Y4EX United Kingdom Fax: Third Avenue, 23rd Floor New York, NY Toll Free: Fax: Suite 3201 Citibank Tower 3 Garden Road, Central Hong Kong Fax: Charleston Road Mountain View, CA Toll Free: Fax: Rosecrans Avenue Suite 4345 El Segundo, CA Toll Free: Fax: American Century Proprietary Holdings, Inc. All rights reserved. GE -FLY FOR NON-U.S. INSTITUTIONAL USE ONLY 8 Rev 2 4/27/ :22:50 PM-3249-INTL_INT