After declining somewhat in the third quarter, global real estate securities, overall, rose during the fourth quarter, capping a strong year for our segment of the equity market. The environment was favorable for interest rate-sensitive stocks as long-term rates and inflation expectations tumbled with oil prices. The portfolio performed well with a respectable gain. Real estate investment trusts (REITs) were one of the stronger areas of the equity market, due primarily to a surprising drop in long-term interest rates, strong real estate fundamentals, and improvements in the U.S. and UK economies. Europe continues to grapple with sluggish growth and fears of deflation, while growth in China has been declining.
The Global Real Estate Fund returned 6.82% in the quarter compared with 8.07% for the FTSE EPRA/ NAREIT Developed Real Estate Ix and 6.70% for the Lipper Global Real Estate Funds Average. For the 12 months ended December 31, 2014, the fund returned 14.47% versus 15.89% for the FTSE EPRA/ NAREIT Developed Real Estate Ix and 14.63% for the Lipper Global Real Estate Funds Average. The fund's average annual total returns were 14.47%, 11.85%, and 16.19% for the 1-, 5-, and Since Inception (10/27/2008) periods, respectively, as of December 31, 2014. The fund's expense ratio was 1.09% as of its fiscal year ended December 31, 2013.
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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 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.
Stock selection was strong in the U.S. and the UK during the fourth quarter of 2014. However, our Hong Kong holdings weighed on the portfolio's performance, with key holdings suffering as investors grew concerned about continued slowing in economic activity in the region. In addition, a shift toward a regulatory crackdown on corruption in mainland China has the potential to significantly hinder luxury spending. Returns within Australia were relatively muted as well, and our stock selection and overall allocation held back overall returns during the period. The largest absolute weight in the portfolio is the U.S., the biggest and 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 companies and major industrial REITs.
The conditions remain in place for an attractive environment for real estate investment, particularly in the U.S. and the UK. Improving economic activity drives the demand for our properties, and we anticipate ongoing strength in property fundamentals as new construction supply appears restrained. Despite the Federal Reserve ending asset purchases in October and indicating that short-term rates may edge up in 2015, interest rates have yet to begin an upward trajectory as many expected would happen in 2014. We feel that even if a rise in rates occurred, it would not necessarily be bad for REITs, assuming a growing economy. Better fundamentals should lead to higher rents, cash flow, and dividend distributions, which should help temper rate concerns. We maintain a favorable long-term view of real estate fundamentals based on improving demand, reasonably constrained supply, and continued access to capital markets.