Stocks recorded solid gains in the final quarter of the year, helping reverse the previous quarter's slide and pushing large-cap benchmarks back into positive territory for 2015 on a total return (including dividends) basis. The Federal Reserve raised its target for short-term interest rates on December 16, the first increase in nearly a decade. U.S. real estate stocks outperformed the broader U.S. equity market amid generally positive performance from the real estate subsectors. The self-storage segment recorded the strongest results, while office and industrial real estate stocks also produced robust returns, supported by firm fundamentals for data centers as well as tempered supply. The lodging sector lagged due to continued concerns about economic growth and new supply in key markets.
The Real Estate Fund returned 7.31% in the quarter compared with 7.64% for the Wilshire US Real Estate Securities Index and 6.57% for the Lipper Real Estate Funds Index. For the 12 months ended December 31, 2015, the fund returned 4.78% versus 4.81% for the Wilshire US Real Estate Securities Index and 2.86% for the Lipper Real Estate Funds Index. The fund's average annual total returns were 4.78%, 12.01%, and 7.39% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2015. The fund's expense ratio was 0.76% as of its fiscal year ended December 31, 2014.
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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.
An underweight position in health care properties was one of the largest contributors to our relative results for the period, and we continue to see industry-specific risks within this segment. Our positioning in data centers hampered results; we have maintained an underweight in this segment because of the threat of losses if these properties need to be repurposed. Our largest industry weighting is in the apartments segment, where strong demand has boosted rent increases. We also have a significant weighting in regional malls, where we own a portfolio of high-quality properties located in attractive real estate markets. The portfolio has a substantial allocation to office real estate investment trusts, a sector where our top holdings possess strong management teams and assets in central business districts with high barriers to entry.
While the market's short-term reactions to interest rate changes 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 solid long-term results. With that in mind, the fundamental conditions for an attractive environment for real estate remain intact. Improving economic activity is driving demand for the properties of real estate firms, and new construction supply still appears restrained. Improving economic fundamentals should help foster an environment for higher rents, cash flow, and dividend distributions, which should help temper concerns about rising rates.