Interest rates are rising but real yields are low, and with inflation soaring, income investors need all the help they can get.
Those factors are prompting some investors to consider real estate assets, but with the current market environment turbulent to say the least, active management could benefit investors seeking real estate exposure. Enter the Duff & Phelps Global Real Estate Securities (VGISX).
VGISX, which has a track record of more than 13 years and a five-star Morningstar rating, focuses on real estate companies with steady streams of recurring rental income. Morningstar recently upgraded its grade on VGISX to “silver” from “bronze.”
“The strategy’s effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy’s portfolio shows it has maintained an underweight position in yield exposure and an overweight in momentum exposure compared with category peers,” according to the research firm.
At the end of the first quarter, the average market value of VGISX member firms was $23.39 billion, indicating that the fund isn’t heavily dependent on the largest real estate investment trusts (REITs). Rather, VGISX’s high-conviction portfolio typically holds 50 to 70 real estate companies backed by solid management teams and robust cash flow-generating capabilities.
“This strategy tends to hold smaller, more growth-oriented companies compared with its average peer in the Global Real Estate Morningstar Category. Analyzing additional factors, this strategy has downplayed yield; its portfolio holds fewer companies with high dividend or buyback yields,” added Morningstar.
Indeed, VGISX has elements of growth relative to standard index-based fare in the REIT category. For example, the actively managed fund allocates about 22% of its combined weight to industrial and data center REITs, providing investors with exposure to fast-growing themes such as demand for warehouse space facilitated by e-commerce and data center needs prompted by cloud computing and cybersecurity.
Those allocations could be compelling for long-term investors. Speaking of long-term investing, VGISX’s long-term track record among real estate fund rivals is enviable to say the least.
“This strategy’s Institutional share class has lapped both its peers and the category benchmark. This share class led its average peer by an annualized excess return of 2.6 percentage points over a 10-year period. And it was also ahead of the category index’s, S&P Global REIT Index’s, gain by 1.1 percentage points over the same period,” concluded Morningstar. “The risk-adjusted performance only continues to make a case for this fund. The share class had a higher Sharpe ratio, a measure of risk-adjusted return, than the index over the trailing 10-year period.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.