All together, the John Hancock Global Real Estate Fund holds approximately $29 million in assets. Of that, more than 82 percent are in REITs and other commercial real estate securities, with smaller percentages in oil and gas exploration, construction firms, infrastructure companies and other ventures. REITs specializing in office and retail properties form large parts of the fund’s holdings, as each sector represents approximately 15 percent of total assets. Additionally, diversified REITs make up 10 percent of the funds holdings.

The fund’s global diversification is evident in its top holdings. Nine of the fund’s top-10 holdings are in real estate, and of those nine, five specialize in properties in East Asia. Two of the fund’s top-10 holdings focus on Europe, and only one concentrates in the United States, though one of the Australian companies on the list—The Westfield Group (ASX: WDC)—has considerable holdings in U.S. retail properties.

The fund’s top five East Asian holdings currently form approximately 16.8 percent of its total holdings and reflect its investment aspirations in that part of the world. Number one on the list (at 3.61 percent) is Allco Commercial REIT of Singapore (SIN: A480), an affiliate of the Australian Allco Group. Besides Australia, Allco has major office and retail holdings in Singapore and Japan.

Also on the list are Mitsubishi Estate (TSE: 8802) and Mitsui Fudosan (TSE: 8801), two mainline Japanese real estate companies, and two Hong Kong firms—Shenzhen Investment (HKG: SZNTF) and Cheung Kong (HKG: 1038)—that have major holdings in that city, as well as other parts of China.

As part of its international expansion, the fund put an emphasis on Asia toward the end of last year and early in 2008 because, as Marguy puts it, “we perceived that recent underperformance in Asian markets lead to good buys.”

East Asia will always be important to the fund, Marguy adds, but, going forward, he anticipates that the geographic spread of the fund will even out a bit more, especially as opportunities present themselves in Europe. The fund already has some major European investments, such as stakes in German office owner IVG Immobilien and the French-Dutch company Unibail-Rodamco (EPA: UL), which has a diverse European portfolio.

Domestic real estate isn’t completely out of John Hancock Global Real Estate Fund’s picture. Essex Property Trust Inc. (NYSE: ESS), a REIT that specializes in apartment holdings in the western United States, is the single American entity among the fund’s top-10 holdings. However, considering the turmoil in the market these days, the fund is likely remain underweighted in U.S. investments for a while, Marguy says.

Strictly speaking, however, some of the major U.S. real estate players represented in the fund’s portfolio—such as Simon Property Group (NYSE: SPG) and ProLogis, Inc. (NYSE: PLD)—are international platforms themselves. “Top-tier U.S. REITs are also moving forward globally, reaping the benefits of their own diversification,” Marguy says. “We intend to benefit from the trend as well.”

Conservative, With a Dash of Contrarianism Though the name and fund’s focus have been realigned, the John Hancock Global Real Estate Fund and its predecessor are not new. In June, the fund celebrated its tenth anniversary, and on the whole, it’s had a solid run. Still, like most real estate funds, last year wasn’t kind to the fund. It lost approximately 31.9 percent during the year, while the NAREIT Equity Index fell by 15.7 percent in the same period. The first quarter of 2008 was better, but the newly reconfigured, internationally focused fund still had lost 1.43 precent year-to-date as of the beginning of May. Marguy characterizes these losses as short-term bumps in a long-term game, the goal of which is to manage risk in a way that promotes strong returns. Before becoming portfolio manager of the fund in May 2006, Marguy spent a good chunk of his career analyzing risk as an investment analyst with John Hancock’s risk management group. Immediately before becoming portfolio manager, he was a research officer focusing on real estate. “Five years in risk management was good experience for this job,” he says. “We analyzed all sorts of risk involving investment banks and other financial players, as well as REITs.” Regardless of its geographic scope, the fund, Marguy says, is essentially conservative in outlook—at least as much as possible for a fund whose overriding consideration is to grow value rather than provide income. There are times, however, when he says a dash of contrarianism is added to the mix. Whether investing in domestic or overseas entities, “we look for companies in the real estate space that are trading below their intrinsic value, judged by using many commonly available metrics,” Marguy says. “We look at discount to net asset value, replacement costs and hard asset values. We consider whether or not the management team is being given enough credit by the market and talk with them and walk through their strategy.” Where does that dash of contrarianism come in? Marguy cites two examples. “Essex Properties has multifamily assets in Seattle and northern California, and we looked at it in the fourth quarter of 2007, just as the housing market was starting its slump,” he says. “At the time, our opinion was that the market wasn’t giving enough value to the company. The impact of the housing market slump on Essex was being overblown, we thought.” He posited that a more important consideration was job growth in the markets in which Essex has its holdings. “Year-to-date, Essex is up 25 percent, so it was a good call,” he says. “Going forward, job markets might become a little weaker, but six to nine months ago that wasn’t the case.” In Hong Kong, the fund owns a stake in Road King Infrastructure Ltd., which owns toll roads in China, in addition to a property development arm. “We also look for unique situations that are generally overlooked, such as Road King,” Marguy notes. The toll-road side of its business generates a steady cash flow, acting as an inflation hedge in inflation-prone China Road King’s revenues can be then reinvested in the property side of the business, leaving it less reliant on potentially dicey capital markets. “It’s arguably not quite real estate, but the point is to seek out undervalued companies,” he says. “Usually those will be real estate plays, but we aren’t so inflexible that we won’t take advantage of more unusual opportunities.”