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Momentum builds for global real estate funds

swon@globeandmail.com

What are we looking for?

How real estate equity funds have fared this year.

Real estate investments trusts have been hot in recent years as investors continue their search for yield in an ultra-low interest rate era.

The screen

We looked at the returns this year to Nov. 23. U.S. dollar. Segregated and duplicate versions of funds were excluded as well as those requiring an investment of more than $10,000.

What did we find?

More global real estate funds building momentum this year.

It's a contrast from last year when most global funds were in the red, while Canadian-focused funds were the stars. Manulife Global Real Estate led the way with a nearly 24-per-cent gain, while the iShares Global Real Estate exchange-traded fund rose nearly 20 per cent.

First Asset REIT Income Class bucked the trend with a 19.7-per-cent gain despite a bias to Canadian securities.

"The REITs sector in particular has had a pretty good run over the last couple of years," said Michael Winer of New York-based Third Avenue Investment Management LLC and lead manager of Manulife Global Real Estate. "In our view, many of the stocks in the North American REIT sector are trading at what we think are premiums to net asset value [NAV] and are probably fully priced. ... In Australia, they are trading at a discount to NAV, and the same in the U.K."

Manulife Global Real Estate is 35 to 40 per cent invested in REITs, but none in Canada. Its only Canadian holding is Brookfield Asset Management Inc.

Some of the fund's winners this year included Forest City Enterprises Inc., Weyerhaeuser Co., a timber REIT, and home improvement retailer Lowe's Cos.

The fund's Hong Kong and Singapore-listed stocks have also performed well this year, but they also "continue to represent the largest discount to NAV" and have the best fundamentals, Mr. Winer said.

Co-manager Jason Wolf described this year as a catch-up for global real estate companies whose stocks have lagged as investors poured into North American REITs last year. "There was a yield grab," he said. "But the valuation discrepancies became so extreme that investors finally poured money into the international space."

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HOW REAL ESTATE EQUITY FUNDS HAVE FARED THIS YEAR TO NOV. 23

Fund nameTickerMERAssets ($-mil)YTD % rtn (Nov. 23)YTD % rtn (Oct. 31)2011 % rtn2010 % rtn2009 % rtn2008 % rtn2007 % rtn
Leaders
Manulife Global Real Estate3.3014.923.5%25.0%-12.7%9.8%24.9%
First Asset REIT Income Class A2.5017.219.7%21.0%21.5%
iShares Glo Real Estate Idx Common ETFCGR-T0.7325.219.6%19.6%-3.1%13.1%11.8%
Fidelity Global Real Estate B2.4023.117.6%18.0%-6.8%12.7%17.0%-36.1%-26.0%
AGF Global Real Estate Equity Class3.3115.417.6%18.0%-7.7%9.5%19.1%-33.0%-22.9%
Counsel Global Real Estate A2.892.517.3%17.5%-7.2%12.3%
INVESCO Global Real Estate-A2.572.616.3%17.1%-6.3%9.8%11.2%-32.9%
CIBC Canadian Real Estate2.9661.315.1%17.2%6.1%23.4%38.6%-39.5%-6.3%
Laggards
Mackenzie Univ World Real Estate Cl2.6430.05.5%6.1%-6.5%8.6%12.7%-39.7%-33.4%
iShares S&P/TSX Capped REIT Index ETFXRE-T0.601,365.27.9%10.3%20.8%21.8%53.2%-38.3%-6.0%
Sentry REIT2.751,230.412.7%14.6%10.1%22.4%36.6%-42.7%-5.9%
Investors Global Real Estate A2.7376.613.1%14.6%0.2%14.4%8.1%
DFA Global Real Estate Sec-Cl A1.769.813.9%15.2%2.4%15.0%10.9%
Renaissance Global Real Estate2.6342.113.9%14.6%-8.3%
BMO Equal Weight REITs Index ETFZRE-T0.62329.714.7%17.1%13.9%
Desjardins Global Real Estate-A2.714.114.8%15.5%-6.8%9.2%17.2%-36.7%
Indexes
S&P/TSX Total Return4.8%6.5%-8.7%17.6%35.1%-33.0%9.8%
S&P/TSX Capped Real Estate Index10.7%11.7%3.8%24.4%37.2%-44.6%-13.1%
S&P/TSX Capped REIT7.5%9.5%15.1%15.1%42.4%-43.1%-10.8%
Source: Lipper

© 2007 The Globe and Mail. All rights reserved.

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