Global real estate securities significantly trailed the broader market during the quarter, due primarily to rising interest rates and concerns that the Federal Reserve would begin to tighten monetary policy. Indeed, at the end of the year, the central bank did announce that it would begin to taper its monthly asset purchases in January 2014, but it also said it would keep short-term rates in place until the labor market improves further in an environment of restrained inflation. Industry performance was mixed, with diversified real estate investment trusts and regional malls exhibiting some strength, and health care and self-storage facilities weaker.
The Global Real Estate Fund returned −0.42% in the quarter compared with −0.49% for the FTSE EPRA/ NAREIT Developed Real Estate Index and −0.11% for the Lipper Global Real Estate Funds Average. For the 12 months ended December 31, 2013, the fund returned 1.37% versus 4.39% for the FTSE EPRA/ NAREIT Developed Real Estate Index and 3.23% for the Lipper Global Real Estate Funds Average. The fund's average annual total returns were 1.37%, 15.37%, and 16.52% for the 1-, 5-, and Since Inception (10/27/2008) periods, respectively, as of December 31, 2013. The fund's expense ratio was 1.36% as of its fiscal year ended December 31, 2012.
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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.
Exposure to Brazil detracted from fund performance. We held a small allocation of regional malls, which have been pressured by negative economic news and ongoing social unrest, despite the companies' positive fundamentals. Stock selection and an overweight position in Hong Kong also trimmed results, as stocks there suffered from uncertainty about China's economic, geopolitical, and social issues. On a positive note, U.S. stock selection was strong. The lodging segment tends to benefit fairly quickly in an economic recovery. Regional malls also provided a boost to relative results. The largest geographical weighting in the portfolio is the United States, the most mature market within commercial real estate. We also have a significant weighting in Japan.
The U.S. economy seems to be on a path towards continuing moderate growth. Improving economic activity drives the demand for our holdings. Investors have been concerned that rising interest rates would put downward pressure on real estate stocks, but better fundamentals should lead to higher rents and growth in cash flows and distributions. The recent weakness in our segment of the market has resulted in better valuations for many of our portfolio holdings. U.S. REITs now look favorable compared with equities in general, and also with bonds. We are less optimistic about the prospects for China and emerging markets. Japan, too, could be hampered by higher taxes.