Global real estate stocks turned in good results during the first quarter, thanks largely to strong performance in the U.S. The gains came 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 Global Real Estate Fund returned 4.44% in the quarter compared with 4.01% for the FTSE EPRA/ NAREIT Developed Real Estate Ix and 3.99% for the Lipper Global Real Estate Funds Average. For the 12 months ended March 31, 2014, the fund returned 2.46% versus 2.18% for the FTSE EPRA/ NAREIT Developed Real Estate Ix and 1.94% for the Lipper Global Real Estate Funds Average. The fund's average annual total returns were 2.46%, 22.28%, and 16.65% for the 1-, 5-, and Since Inception (10/27/2008) periods, respectively, as of March 31, 2014. 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.
Our stock selection and an underweight in Japan benefited fund results during the first quarter. Many Japanese REITs have been hampered by a pending consumption tax increase and uncertainty about the country's economic recovery. Stock selection in the U.S. was positive, with a focus on operators of office and apartment properties in high-barrier markets in Los Angeles and Honolulu. Our UK positions were also beneficial, thanks to good results from owners of retail properties in the UK and France, and office properties in Central London. We were not as fortunate in Australia, where our major holdings restrained performance. The U.S. remains the largest country allocation in the portfolio. In addition, we are optimistic about our positions in Japan and Australia, where we are well-represented.
The poor weather during the period had a temporary impact on U.S. economic data, but with that largely behind us, the U.S. economy should continue to improve moderately. Economies elsewhere have been struggling. Europe is improving but is behind the U.S. trajectory, and China's problems have taken a toll on properties in Hong Kong and other areas. We have been concerned about mounting bankruptcies on the mainland. While we are mindful of the ongoing geopolitical unrest in Ukraine, 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.