1. CodyPickensforBarron’s
%www.barrons.comTHE DOW JONES BUSINESS AND FINANCIAL WEEKLY AUGUST 13, 2012
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August 6 through August 10, 2012
McGowan is a local-market
expert who finds neighborhoods
off the beaten track.
Talking With Michael McGowan
Portfolio Manager, Forward International Real Estate
Real Estate Rules
by J.R. Brandstrader
August 6 through August 1
McGowan is a local-market
expert who finds neighborhoods
off the beaten track.
Talking With Michael McGowan
Portfolio Manager, Forward International Real Estate
Real Estate Rules
by J.R. Brandstrader
Michael McGowan grew up globe-trotting. The son of a Unit-
ed Airlines pilot, McGowan, now 47, routinely accompanied his
father on international flights. His first business was a form of
international investing: As a teenager, he and a friend would buy
stamps from places such as Christmas Island, Nauru, and Papau
so he could sell them at a profit to dealers in Australia.
These days, as manager of the Forward International Real
Estate Fund (ticker: KIRAX), McGowan carries a passport
that’s even more heavily stamped, and his profits are even big-
ger. As of Aug. 9, the $84 million fund is up 41% year-to-date,
more than twice its Morningstar global real-estate category, and
beating 98% of its rivals. Over three years, the fund is up 16.5%,
nearly twice the 8.6% gain of its benchmark index, the MSCI
World (net return, in U.S. dollars).
This tiny fund is not for the faint of heart, though. It lost half
of its value in 2008, driven by a 27.6% plummet in the fourth
quarter. Its five-year record, a 1.8% loss, is on par with the
benchmark’s 1.7% loss, but beats the category, which lost, on
average, 3%.
Nor is this fund for the cost-conscious investor. It carries a
5.75% load and an expense ratio of 1.65%. Its turnover is more
than 300%, which indicates above-average transaction costs.
The names in the portfolio, however, don’t change with anything
near that frequency. McGowan frequently buys and sells the
same stock over and over to profit from any volatility. “The
big headlines are not changing what the company is worth,” he
says. “They are just changing the price of the stock.” McGowan
bought and sold Mitsubishi Estate (8802.Japan), for instance, 13
times over the course of 2011. The stock declined 23% over the
course of the year, but McGowan’s frequent trading enabled a
12% gain. While he frequently trades big, liquid companies, he
2. TotalReturns*
1-Yr 3-Yr 5-Yr
KIRAX
MSCIWorldNRUSD
%Of
Top10Holdings Ticker Portfolio**
CSI Properties
SoundwillHoldings
HangLungProperties
HollowayLodging
REIT
Wing TaiHoldings
Wing TaiProperties
Alstria Office REIT
AstroJapanProperty
Group
BrookfieldCanada
OfficeProperties
InnVestREIT
Total: 46.73
Forward International
Real Estate Fund
also looks for deeper value in smaller, less
liquid companies that he’ll hold onto for
longer periods.
McGowan may have spent his for-
mative years flying, but there is noth-
ing up-in-the-air about his research. It’s
boots-on-the-ground, walking the neigh-
borhoods without a guide, and inputting
data into a spreadsheet to spot anoma-
lies and similarities in prospective invest-
ments. Kevin Lai, who works for Merrill
Lynch in Hong Kong, has hit the streets
with McGowan. “His database is far more
detailed than other portfolio managers’,”
Lai says. “It includes pictures and in-
formation on square footage, rent rolls,
and other specs.” McGowan attributes
his attention to detail to his start in the
business during the savings-and-loan cri-
sis. “It taught me just how fast the price
of a building can change and how to dig
through financial statements,” he says.
Like his stamp collection, where he
favors overlooked gems from Brunei and
Borneo, McGowan is a local-market ex-
pert who finds properties and neighbor-
hoods off the beaten track. He looks for
locations with good transportation, an
educated population, and barriers to new
supply—such as rivers, mountains, and
oceans.
His universe is small to begin with;
of the 1,200 publicly traded international
real-estate investment trusts or compa-
nies, only 600 are liquid enough to be in-
vestable. Most funds stick to the biggest,
most liquid names, but McGowan tries to
find overlooked smaller companies that
are trading at a big discount to the value
of their properties and offer a high yield,
even if it means sacrificing a little liquid-
ity. The fund’s top 10 holdings altogether
represent just 0.05% of the benchmark.
He concedes concentrating on smaller and
mid-cap names can be risky, but he con-
siders the volatility an ally, and spreads
his bets across 70 to 90 names.
A recent fact-finding trip to Canada
turned up Allied Properties REIT (AP/U.
Canada). “It specializes in the conversion
of older industrial properties in Toronto
and Montreal into trendy ‘brick and beam’
offices, favored by technology, media, ad-
vertising, and other small, creative firms,”
McGowan says, adding that rising rents,
acquisitions and new developments will
enable the company to increase its 4.4%
dividend and retain cash to reinvest in its
growth.
A longtime favorite is Shaftesbury
(SHB.U.K.), which specializes in London’s
West End. “It owns a unique collection
of distinctive retail, office, and residen-
tial buildings in Chinatown, Carnaby, and
Seven Dials,” he says, adding that man-
agement has been able to add value and
continue to grow this “near-irreplaceable”
portfolio of properties with high demand
and very low vacancy rates.
McGowan’s fondness for Asia leads him
even further off the beaten track. Instead
of the obvious play, focusing on the new
towers in the flourishing downtown area
of a city, McGowan looks for new shops
and other developments near new sub-
way stations, like Hang Lung Properties
(0101.Hong Kong), a developer of upscale
malls and high-rise residential proper-
ties in both Hong Kong and China. “It
is very disciplined and is unusual in that
it is ‘net cash,’ or more cash than debt,”
McGowan says. “And it’s well known for
having excellent corporate governance.”
He expects earnings to double in the next
year thanks to demographic demand for
its properties.
Similarly, Mapletree Commercial Trust
(MCT.Singapore) owns a small portfolio
of high-quality properties in the grow-
ing western suburbs of Singapore. Its
flagship, VivoCity mall, is located at the
gateway to the new Sentosa Island resort
and gaming area, and has seen a steady
increase in visitor traffic. “The large, air-
conditioned shopping malls are especially
popular in this hot and humid climate,”
he says. And in keeping with his trans-
portation theme, Mapletree’s office as-
sets are adjacent to new subway stations.
McGowan expects more than 10% earn-
ings growth in the next year, and for now
there’s a 5.6% yield.
On his next trip, he plans to stop in
the Philippines, where he already owns
SM Prime Holdings (SMPH.Philippines),
the nation’s largest owner and developer
of shopping malls, which thrive on remit-
tances from overseas workers; by some
estimates, McGowan says, 30% of the $21
billion the Philippines receives from over-
seas workers gets spent in SM Prime’s
malls. Strong sales growth leads to higher
rents. n
3. Forward International Real Estate Fund
Performance as of June
30, 2012 2Q12 YTD 1 Year 3 Year 5 Year
Since
Inception*
Gross/Net
Expenses†
Forward International Real
Estate Fund— A (NAV)1
7.07% 34.19% 7.87% 18.10% -3.43% 0.94% 2.14%/1.80%
Forward International Real
Estate Fund— A (MOP)2
0.93% 26.51% 1.66% 15.79% -4.57% -0.03%
FTSE EPRA/NAREIT
Developed ex-U.S. Index 0.73% 15.53% -5.37% 11.53% -5.55% -0.17%
Returns for periods greater than one year are annualized.
The 1.65% expense ratio listed in article reflects Morningstar data that has since changed. The expense ratio as of 6/30/2012 is 2.4% Gross/1.80% Net.
1
Excludes sales charge
2
Reflects effects of the Fund’s maximum sales charge of 5.75%
* 4/28/06
†
The Fund’s investment advisor is contractually obligated to waive a portion of its fees and reimburse other expenses until April 30, 2013, in amounts
necessary to limit the Fund’s operating expenses (exclusive of brokerage costs, interest, taxes, dividends, acquired fund fees and expenses, and
extraordinary expenses) for Class A shares to an annual rate of 1.80%.
The performance quoted represents past performance, does not guarantee future results and current performance may
be lower or higher than the data quoted. The investment return and principal value of an investment will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost. Performance data current to the most
recent month end may be obtained at www.forwardinvesting.com. Investment performance reflects fee waivers in
effect. In the absence of fee waivers, total return would be lower. Total return is based on NAV, assuming reinvestment
of all distributions. Performance does not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
The FTSE EPRA/NAREIT Developed ex-U.S. Index is designed to track the performance of listed real estate companies and
REITs worldwide, excluding U.S. companies. One cannot invest directly in an index.
The MSCI World Index is a free float-adjusted market capitalization index designed to measure global developed market equity
performance.
Top 10 Holdings as of 6/30/2012
Security % Net Assets
CSI Properties, Ltd. 9.6
Soundwill Holdings, Ltd. 6.4
Hang Lung Properties, Ltd. 6.0
Holloway Lodging REIT 5.0
Wing Tai Holdings, Ltd. 4.8
Net Cash and Cash Equivalents 4.8
Wing Tai Properties, Ltd. 4.4
Alstria Office REIT AG 2.9
Astro Japan Property Group 2.8
Brookfield Canada Office Properties 2.6
These holdings may not reflect the current or future positions in the portfolio.
The statements and opinions expressed in the article are those of the author, as published by Barron’s on 08/11/2012. Forward
does not guarantee the accuracy of opinions and content.
The fund seeks total return from both capital appreciation and current income.
You should consider the investment objectives, risks, charges and expenses of the Forward Funds carefully
before investing. A prospectus with this and other information may be obtained by calling (800) 999-6809 or by
downloading one from www.forwardinvesting.com. It should be read carefully before investing.
RISKS
There are risks involved with investing, including loss of principal. Past performance does not guarantee future
results, share prices will fluctuate, and you may have gain or loss when you redeem shares.
Borrowing for investment purposes creates leverage, which can increase the risk and volatility of a fund.
Concentration in a particular industry will involve a greater degree of risk than a more diversified portfolio.
Foreign securities, especially emerging or frontier markets, will involve additional risks including exchange rate
fluctuations, social and political instability, less liquidity, greater volatility and less regulation.
Investing in a non-diversified fund involves the risk of greater price fluctuation than a more diversified portfolio.
Investing in the real estate industry or in real estate-related securities involves the risks associated with direct
ownership of real estate which include, among other things, changes in economic conditions (e.g., interest
rates), the macro real estate development market, government intervention (e.g., property taxes) or
environmental disasters. These risks may also affect the value of equities that service the real estate sector.
Forward Funds are distributed by Forward Securities, LLC.
