Festive Times for International Real Estate Funds
Let's get the party started: An overseas run-up in real estate funds is rocking.
International real estate funds are up 38 percent in 2009, or about 100 percent above their market bottom in March, according to
Their gains come from portfolios of real estate investment trusts (REITs) that own commercial properties, with the most robust gains occurring in other countries.
"We're seeing stronger pickup in economic growth outside the U.S., which will lead to stronger real estate fundamentals there as well," said
While more than 30 percent of
Top overseas holdings in this 85-stock portfolio include
On mixed expectations for the U.S. commercial real estate market, the 17 percent rise of domestic real estate funds in 2009 lags the 23 percent gain of the average U.S. diversified stock fund, according to Lipper.
Most recently, Colony Financial and Apollo Commercial Real Estate Finance, two domestic REITs that plan to invest in troubled commercial real estate debt, had less-than-stellar initial public offerings because investors remain wary about the sector.
Since the upward movement in international real estate funds is following a market collapse, no one can say with absolute certainty how long this party will last.
Traded on exchanges like a stock, a REIT invests in and owns properties such as shopping centers, offices, apartments and industrial facilities. Publicly traded REITs that provide dividend yields comparable to bonds are the primary holdings within real estate funds.
"We're coming off a fairly significant decline in global real estate securities, so a lot of the run-up has been making up for the previous decline," said Curbo, who emphasizes high-quality, publicly traded commercial real estate companies in his portfolio. "However, I think the valuations are reasonable for a long-term investor, and there is some upside to be gained from improvement in the economy."
Those companies derive a large portion of their income from leases, which means they are basically landlords, Curbo noted. A five-to-10-year lease in which the tenant is obligated to pay provides a little more income stability for investors, he said.
A year ago, no one was playing party tunes in any part of the globe, so current gains must be taken in stride.
"Real estate has done well because people are bottom-shopping and looking for good income distribution that isn't correlated with other classes," said
Investors often mistakenly assume real estate funds are tied to homes, when they really have more to do with commercial space, office buildings and retail space, said Roseen. But even if investors understand that these funds involve commercial buildings, that market doesn't justify the giddiness of some buyers of real estate funds. Doomsayers have been warning about upcoming commercial real estate problems for months.
"I really don't think there's a connection to the overall real estate market because you haven't seen a lot of deals come to market in which bigger REITs are buying up prized real estate from distressed competitors," said
There have been few deals even though companies have been suspending their dividends to conserve and build cash, he said.
"You won't find many people who are saying that the fundamental issues facing real estate have been addressed and solved," Gogerty said. "We're not nearly as positive on real estate as we used to be because of the direct headwinds of volatility in the sector and a lot of trading going on that isn't tied to fundamental changes."
The best bets in domestic real estate funds include
"The real estate asset class is not for the faint of heart and should only be a small portion of investors' asset allocation schemes," Roseen cautioned. "While real estate is an uncorrelated asset class and an investor's portfolio should contain it, the numbers indicate the party could be over because of the tremendous gains over the past 12 months."
As always, the real estate outlook will continue to confound and tantalize pundits and investors.
Rebuilding Your Investment Portfolio
Markets have managed to claw back from the worst crisis in decades to rock Wall Street, but nearly everyone is still feeling poorer than just a few years ago. So where do average investors stand today when it comes to regaining all that lost investment, especially the millions of Americans nearing retirement age? In many cases, they're still digging out. And how long will it take to recover your losses? Maybe not as long as you think
Foreign Currency Investing: Now May Be the Time
If you've been trying to find a place to invest your money and are feeling uneasy with U.S. stocks and bonds, consider looking overseas. You should know that an increasing number of experts are encouraging clients to boost their holdings in international currencies -- a once-rarefied market that's become more accessible to individual investors.
Know Target-Date Fund's Strategy Before Investing
Forget about resting easy. Target-date funds, billed as confidence-building vehicles that gradually shift your holdings into more conservative fixed-rate instruments as their date nears, have caused some sleepless nights. Investors stashed money in these one-stop retirement plans so they didn't have to worry about making their own allocation decisions. But it has become clear they need to better understand the basic
Oil Investments Are Predictably Unpredictable
Oil companies are the elephant in the room. The wide trading range and erratic movement of oil prices has been perplexing to pundits, investors and motorists alike. You're not hearing bold prognostications or definitive explanations about either oil prices or oil-company stocks. Better to simply wait quietly for everything to play out, most rational people reason. When that will occur, however, no one knows for sure.
Mergers and Acquisitions Perking Up Again
Whether or not you're personally convinced that the recession is just about over, those in the big-buck mergers-and-acquisitions game are believers. 'It's all a sign you can't keep a good capitalist down and eventually greed will overcome fear,' said James Paulsen, chief investment officer for Wells Capital Management, Minneapolis. People are saying, 'Gee, not only are we not going to have a depression, but it looks like we're actually going to have a recovery.'
Investing - Festive Times for International Real Estate Funds
(c) 2009 TRIBUNE MEDIA SERVICES, INC.