Real estate stocks turned in excellent results during the first quarter in the face of geopolitical tensions and investor concerns about the Federal Reserve's scaleback in asset purchases and eventual monetary tightening. Interest rates declined, providing a boost for bonds and equities offering yields, including real estate investment trusts (REITs). Returns were positive across most property types, with self-storage delivering the strongest performance and apartments rebounding from weakness in 2013. By contrast, lodging and diversified REITs were somewhat lackluster.
The Real Estate Fund returned 10.00% in the quarter compared with 9.99% for the Wilshire US Real Estate Securities Index and 8.13% for the Lipper Real Estate Funds Index. For the 12 months ended March 31, 2014, the fund returned 7.28% versus 4.61% for the Wilshire US Real Estate Securities Index and 0.80% for the Lipper Real Estate Funds Index. The fund's average annual total returns were 7.28%, 29.59%, and 8.72% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.78% as of its fiscal year ended December 31, 2012.
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
The Real Estate Fund charges a 1%
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.
Our stock selection in office REITs made the largest contribution to the fund's first-quarter return, with a focus on top-quality properties with high barriers to competition. Apartment REITs also aided results, as our holdings in middle- to upper-market communities in Sunbelt regions did well. Many West-Coast markets have limited supply, which benefited firms with good fundamentals. Despite the fund's good performance during the quarter, we had our detractors as well. We were exposed to an active manager of timberlands, which suffered because of a lull in the housing market, and to a holding in the regional mall segment that operates in middle markets across the U.S.
The poor weather during the period had a temporary impact on economic data, but with that largely behind us, the U.S. economy should continue to improve moderately, with contained inflation, a gradual housing recovery, and a strengthening labor market. The economy has so far shown resilience against the backdrop of the Fed's tapering of its monthly asset purchases. Long-term rates have eased a bit, and short-term rates have not spiked, as some had feared. While we are mindful of the ongoing geopolitical unrest in Ukraine and elsewhere, we do not believe it will have more than a minimal impact on our commercial real estate properties unless conditions escalate dramatically. We maintain a favorable long-term view of real estate fundamentals, with growing demand, somewhat constrained supply, and reasonable access to capital markets.