Global real estate investment trusts (REITs) turned in negative results during the quarter, against a backdrop of geopolitical turmoil, including escalation of hostilities in the Middle East and continued conflict between Russia and Ukraine. Many global economies showed signs of weakness. China, which has been an engine of global economic growth over the past few years, has downshifted. Simultaneously, Europe has stagnated despite continued attempts at a targeted stimulus through European banks. Rising long-term interest rates in the U.S. in September also put pressure on the sector.
The Global Real Estate Fund returned −4.37% in the quarter compared with −4.43% for the FTSE EPRA/ NAREIT Developed Real Estate Ix and −3.94% for the Lipper Global Real Estate Funds Average. For the 12 months ended September 30, 2014, the fund returned 6.71% versus 6.71% for the FTSE EPRA/ NAREIT Developed Real Estate Ix and 7.18% for the Lipper Global Real Estate Funds Average. The fund's average annual total returns were 6.71%, 11.42%, and 15.63% for the 1-, 5-, and Since Inception (10/27/2008) periods, respectively, as of September 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 largest regional weighting in the portfolio is the U.S., the most mature market within commercial real estate. We hold a diverse range of U.S. commercial real estate companies, with our largest allocations in regional mall operators and industrial REITs. In the U.S., leasing pipelines remain full, and occupancy rates and rents are increasing in many markets across a broad spectrum of property types. We have a significant weighting in Japan, where we believe our holdings are well positioned to benefit from economic recovery and a reversal of deflationary pressures. We also maintain a substantial weighting in Hong Kong, where we focus our efforts on companies with high-quality properties in attractive locations.
While Europe is sluggish and China's growth has slowed, the U.S. economy continues to advance, creating an attractive environment for real estate investments. Improving economic activity drives the demand for real estate, and new construction supply remains largely constrained. While fears have grown that a rise in interest rates might place downward pressure on net asset values, the benefits that real estate firms derive from an improving economy override these concerns, in our view. A strengthening economy should lead to higher rents, better cash flow, and healthy dividend distributions. We believe that conditions will improve elsewhere in the world, and we maintain a favorable long-term view of real estate fundamentals.