Property Value Want to be a land baron but don't have the cash? Check out a real estate investment fund.
Opinions expressed by BIZ Experiences contributors are their own.
If you fancy the idea of owning property but don't have thecash to buy it, a real estate fund may be what you've beenlooking for. Real estate funds have been growing in popularity overthe past few years. One of the reasons these income-producing fundshave enjoyed a shareholder increase is that most invest in equityReal Estate Investment Trusts (REITs).
An equity REIT is a stock that must pay out 95 percent of itstaxable income as dividends if it's to enjoy a tax-advantagedstatus. What REIT companies typically do is own and manage aportfolio of income-producing real estate. One REIT might ownapartment complexes in the Southwest; another could specialize inowning hotels nationwide.
Because there is almost no end to the real estate propertycombinations you can make, most equity REITs represent asector-specific diversified investment. Put a group of differentREITs in a mutual fund portfolio, and you multiply thatexposure.
"Real estate represents about 17 percent of ourcountry's investment asset base," says Robert W. Benson,who has managed the Pioneer Real Estate Shares fund since itsinception in October 1993. "The reason to have real estate inyour portfolio is diversification--and to invest in a part of theU.S. economy that's doing quite well at this point."
Another reason behind the growing interest in real estate fundsis that the fundamentals of the real estate cycle, which typicallylasts between five and seven years, have been and continue to lookstrong. Riding the wave of the real estate cycle can be tricky,however. There are easily 10 different real estate property types.If you've lived in one part of the country for any length oftime, you have firsthand knowledge of how prices on different typesof real estate can fluctuate: Sometimes prices on, say, multifamilyapartments are hot; sometimes they're not.
Benson figures the United States is about midway through a realestate cycle. "We're in about year three," he says."And we have at least a few years of improving fundamentalsahead of us, which could result in REITs growing their cashflows."
In the Pioneer fund, you'll find most assets invested infour different property types: industrial/office, hotels,apartments, and retail, with overweightings in hotels and officeand underweightings in the others. Of the portfolio's 33companies, 29 are REITs.
When looking for new investments, Benson focuses on equity REITsthat aren't necessarily the highest yielding but have thehighest growth potential and, hence, could increase theirdividends.
Even if the idea of real estate fund investing appeals to you,don't bet the farm. An asset allocation of between 5 percentand 15 percent is probably enough exposure. And as far asperformance goes, real estate funds have a mind of their own: In1997, the average annual total return for the group was 19.74percent. That's below the returns of both the Dow JonesIndustrial Average (up almost 25 percent) and the S&P 500 Index(up 33.4 percent). In 1996, however, the group's average returnof more than 36 percent beat the indices.
Dian Vujovich is a nationally syndicated mutual fundcolumnist and author of Straight Talk About Mutual Funds(McGraw-Hill), Straight Talk About Investing for YourRetirement (McGraw-Hill), and 10-Minute Guide to Stocks(Macmillan).
At A Glance
Fund name: Pioneer Real Estate Shares
Portfolio manager: Robert W. Benson
Managed by: Pioneer Funds Distributor Inc.
Total assets: $220 million
Average annual return: 14.54%
Maximum load: 5.75% on investments of $50,000 or lessManagement fee: 1%
Phone: (800) 225-6292
Web site:http://www.pioneerfunds.com
Figures are as of February 16, 1998
Contact Sources
Lipper Analytical Services Inc., (212) 393-1300, http://www.lipperweb.com
