Despite increased volatility, U.S. real estate stocks finished higher during the third quarter and outperformed the broader U.S. market. While uncertainty surrounding the timing of a Federal Reserve interest rate hike influenced real estate securities during the quarter, property fundamentals continued to improve, and real estate supply and demand look relatively balanced over the long term. Performance across subsectors was generally positive, with the self-storage segment leading the way amid increased merger and acquisition activity. Apartments performed well, benefiting from slow-but-steady economic improvement and favorable demographic trends throughout much of the U.S.
The Real Estate Fund returned 2.66% in the quarter compared with 2.85% for the Wilshire US Real Estate Securities Index and 1.13% for the Lipper Real Estate Funds Index. For the 12 months ended September 30, 2015, the fund returned 11.53% versus 12.01% for the Wilshire US Real Estate Securities Index and 8.98% for the Lipper Real Estate Funds Index. The fund's average annual total returns were 11.53%, 12.17%, and 7.01% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2015. The fund's expense ratio was 0.76% as of its fiscal year ended December 31, 2014.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
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.
Stock selection in shopping centers was the largest contributor to relative performance during the quarter, while an underweight allocation to the relatively strong self-storage industry weighed on results. Our largest industry weighting is in the apartments segment, where strong demand has supported rent increases. We prefer property managers operating in attractive real estate markets where the cost of homeownership is high. We also have a significant weighting in regional malls, where we own a portfolio of high-quality malls in favorable markets that tend to produce stable and growing cash flows.
We remain optimistic about the real estate sector, as valuations over the long term tend to be driven more by earnings growth than short-term interest rates. While economic growth remains far from robust, employment continues to recover, and we have begun to see small improvements in wage growth and household formation. In addition, lower oil prices should be a boost for consumers and consequently for our consumer-driven economy. This demand should benefit a wide variety of property types in the real estate space. While the market's short-term reactions to rates have increased volatility in real estate securities over the past few years, we continue to believe that focusing on individual company analysis is the best way to create attractive long-term results.