Positive gains in real estate securities were commonplace across the globe in the second quarter, with the notable exception of Japan. A worldwide environment of easy monetary policy served to keep interest rates low and bolster the attractiveness of income-producing asset classes such as real estate. While global unrest was quite evident, investors seem to shrug off these concerns as equity markets powered ahead with minimal volatility. Indeed, despite the sectarian violence in Iraq, tensions between China and Japan, and the dispute over the Ukraine, which pits Russia against NATO, volatility dropped to levels last seen prior to the global financial crisis.
The Global Real Estate Fund returned 7.29% in the quarter compared with 7.88% for the FTSE EPRA/ NAREIT Developed Real Estate Ix and 7.41% for the Lipper Global Real Estate Funds Average. For the 12 months ended June 30, 2014, the fund returned 13.96% versus 14.38% for the FTSE EPRA/ NAREIT Developed Real Estate Ix and 13.65% for the Lipper Global Real Estate Funds Average. The fund's average annual total returns were 13.96%, 17.10%, and 17.30% for the 1-, 5-, and Since Inception (10/27/2008) periods, respectively, as of June 30, 2014. The fund's expense ratio was 1.09% as of its fiscal year ended December 31, 2013.
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The Global Real Estate Fund charges a 2%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
The U.S. remains our largest investment market, and returns among U.S. real estate investment trusts were robust during the period. Apartment REITs were major contributors to fund performance. Stronger job creation bodes well for office demand, and we were rewarded by our office holdings, with the west coast landlords once again shining. With key technology companies prospering in the San Francisco Bay Area, developers continued to attract the interest of tenants and investors. There has been a substantial movement by several regional mall owners to prune less-productive centers that they believe will lag the results of the remainder of their portfolios. In Asia, returns were generally satisfactory outside of Japan. Returns were much healthier in Australia, where investors appear to be rewarding management actions by narrowing the discounts to net asset value.
A healthier economic outlook underpins the Fed's decision to dial back asset purchases, creating an attractive environment for real estate investments. Improving economic activity drives the demand for our properties, and we anticipate ongoing improvement in property fundamentals as new construction supply remains restrained. Fears that a rise in interest rates would place downward pressure on properties have not materialized. Better fundamentals should temper these concerns and lead to higher rents with growth in cash flows. We maintain a favorable long-term view of global real estate fundamentals based on improving demand, reasonably limited supply, and continued access to capital markets.