Nicole Funari, Nareit vice president for research, was a guest on the latest episode of the Nareit REIT Report.
Funari discussed Nareit’s new project that initially involves tracking quarterly investment holdings for the 28 largest actively managed real estate investment funds that focus on REITs from 2010 to the first quarter of 2023.
While performance returns offer a broad market perspective on what investors think about REITs, by narrowing the focus to active managers, or “people whose income and livelihoods depends on how well they can read the market for commercial real estate, we really get to capitalize on their unique insights and their expertise in this area,” Funari said.
Key takeaways of the analysis to date shows active managers making a strong bet on residential REITs, while backing away from the office sector. Meanwhile, exposure to retail remains high although market value has declined, and new economy sectors have been added to actively managed portfolios.
Other highlights from the episode include:
- A one basis point increase or decrease in a property sector's weight in an actively managed fund is associated with a statistically significant three basis points of outperformance or underperformance. Correlations are even stronger for certain sectors. “We really do see it bear out when we look across this whole time period that these active managers are able to successfully read the market.”
- As of the first quarter, 17 funds no longer have exposure to office. “It's not just that they are picking a couple of their favorite, most geographically advantageous office REITs, they're really just limiting their exposure to office property sector entirely.”
- While infrastructure REITs are persistently underweighted, that is because many funds are benchmarked to indexes that do not include them. The share of infrastructure REITs is growing among active managers, who are adding back infrastructure REITs on their own.