Open house for real estate.
Investing in real estate usually means making a six-figure commitment and dealing with the proverbial midnight call to deal with a tenant's problem plumbing. But is there another way to buy property without the brick-and-mortar headaches? You may want to try real estate funds.
This year, the performance of such funds has been rock solid. According to Morningstar Inc., the Chicago-based mutual fund tracking firm, the average real estate fund returned 21%, for the year 2000 ending July 31, compared to a negative return of 2% for the S&P 500. However, such funds were among the weakest performers over the past two years: They produced negative returns of 15.8% and 3.5% for 1998 and 1999, respectively. Over the same period, the S&P 500 was up 29% and 21%, respectively These funds displayed a healthy performance during the mid-'90s: They returned 23.3%, on average, for the three years from 1995 to 1997.
There are roughly 60 funds in this category, most of which are loaded with real estate investment trusts, or REITs (which rhymes with suites)--companies formed to invest in properties. With a real estate mutual fund, a professional manager will pick the REITs for you, and in turn, you'll own interests in hundreds of different properties. Kunal Kapoor, a senior analyst at Morningstar, says that "most REITs today are `equity REITs,' meaning that they own properties" like downtown office buildings, shopping centers, or apartment complexes.
You're probably wondering if REIT funds are poised to continue their run-up. "Real estate funds should be able to produce 11% to 14% annual returns," says Damon Andres, portfolio manager of the Delaware REIT fund (DPREX). "If you start with a 6.5% yield, all you need is 8% price appreciation to reach that level. Today, the economy is strong enough to push up REIT profits at least that much, which would be reflected in share prices."
Which sectors offer the best building blocks for profits? Andres is bullish on office buildings, which are expected to benefit from ongoing economic expansion. Among his holdings are Equity Office Properties (NYSE: EOP), which has a national focus, and Spieker Properties (NYSE: SPK), which is positioned in the booming market of the West Coast. With the slowing of home buying because of higher mortgage rates, he is also partial to such apartment rental companies as AvalonBay Communities and Apartment Investment & Management.
The best-performing real estate funds on Morningstar's list include SSgA Tuckerman Active REIT (SSREX), which produced a total year-to-date return of 28.83%, and Security Capital U.S. Real Estate (SUSIX), which posted a year-to-date total return of 27.48%. Both benefited from investments in such REITs as the aforementioned Equity Office Properties.
Underperforming funds include Longleaf Partners Realty (LLREX), which produced an unimpressive year-to-date total return of 7.96% because of its emphasis on real estate-related operating companies such as hotel chains like Hilton and developments such as California-based Catellus Development instead of REITs. At the bottom of the list is Cohen & Steers Special Equity (CSSPX), with an abysmal negative year-to-date total return of 6.85% as a result of investing in such companies as Frontline Capital Group (Nasdaq: FLCG), formerly Reckson Service Industries, and Allied Riser Communications (Nasdaq: ARCC), which both posted losses of more than 60% so far this year. "Funds that hold REITs tend to be more income-oriented, while funds that emphasize real estate operating companies may be more volatile, relying more on growth to provide total returns," says Kapoor. "Either way, you should take a long-term view of real estate funds. If you want real estate in your portfolio, these funds should be considered because the securities ultimately reflect the holdings."
TOP 5 REAL ESTATE FUNDS
Year-to-Date 1-Year Ann. Fund Name (Ticker) Total Return(*) Total Return SSgA Tuckerman Active REIT (SSREX) 28.83% 25.31% Security Cap U.S. Real Est (SUSIX) 27.48 21.68 Franklin Real Estate Sec A (FREEX) 27.17 19.09 Goldman Sachs Real Est A (GREAX) 26.10 20.48 Victory Real Estate Invest A (VREIX) 25.88 21.22 3-Year Ann. 5-Year Ann. Fund Name (Ticker) Total Return Total Return SSgA Tuckerman Active REIT (SSREX) N/A N/A Security Cap U.S. Real Est (SUSIX) 8.58% N/A Franklin Real Estate Sec A (FREEX) 3.43 12.2% Goldman Sachs Real Est A (GREAX) N/A N/A Victory Real Estate Invest A (VREIX) 6.55 N/A Toll-Free Minimum Fund Name (Ticker) Number Initial Investment SSgA Tuckerman Active REIT (SSREX) 800-647-7327 $1,000 Security Cap U.S. Real Est (SUSIX) 888-732-8748 2,500 Franklin Real Estate Sec A (FREEX) 800-342-5236 1,000 Goldman Sachs Real Est A (GREAX) 800-621-2560 1,000 Victory Real Estate Invest A (VREIX) 800-539-3863 500
(*) Return as of 7/31/00
Source: Morningstar Inc.
BOTTOM 5 REAL ESTATE FUNDS
Year-to-Date 1-Year Ann. Fund Name (Ticker) Total Return(*) Total Return FBR Realty Growth (GVRGX) 9.37% -3.9% Longleaf Partners Realty (LLREX) 7.96 -5.02 Alpine Intl Real Estate Y (EGLRX) -1.65 -10.45 Security Cap Euro Real Est (SEUIX) -2.25 -10.74 Cohen & Steers Special Eq (CSSPX) -6.85 13.64 3-Year Ann. 5-Year Ann. Fund Name (Ticker) Total Return Total Return FBR Realty Growth (GVRGX) -3.16% 9.02% Longleaf Partners Realty (LLREX) -3.53 N/A Alpine Intl Real Estate Y (EGLRX) 0.26 0.9 Security Cap Euro Real Est (SEUIX) N/A N/A Cohen & Steers Special Eq (CSSPX) -2.37 N/A Toll-Free Minimum Fund Name (Ticker) Number Initial Investment FBR Realty Growth (GVRGX) 800-821-3460 $3,000 Longleaf Partners Realty (LLREX) 800-446-9469 10,000 Alpine Intl Real Estate Y (EGLRX) 888-785-6578 1,000 Security Cap Euro Real Est (SEUIX) 888-732-8748 2,500 Cohen & Steers Special Eq (CSSPX) 800-437-9912 10,000
(*) Return as of 7/31/00
Source: Morningstar Inc.
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|Author:||Korn, Donald Jay|
|Article Type:||Statistical Data Included|
|Date:||Nov 1, 2000|
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