Standard & Poor's Expects Market Performance from Real Estate Mutual Funds in 2004

Strategic Insights -

Despite a notable 36.60% return to investors in 2003, Standard & Poor's forecasts a less rewarding year from real estate mutual funds in 2004. Real estate funds have stayed in fashion even after other funds recovered, but results in the REIT sector are expected to be less impressive this year. Standard & Poor's Equity Analyst Raymond Mathis anticipates REITs will deliver returns of 11% in 2004. The surge in popularity of real estate mutual funds can be attributed to investors seeking dividends and stability in the wake of the tech bubble bursting in 2000.

Key Takeaways:

  • Real estate mutual funds returned 36.60% to investors in 2003, a year after becoming popular during the bear market.
  • Standard & Poor's forecasts a less rewarding year from real estate mutual funds in 2004, with an expected return of 11% from REITs.
  • Real estate investments have done well over the last three years due to low interest rates, making their yields attractive compared to those of competing fixed-income investments.
  • Standard & Poor's recommends limiting holdings in a real estate mutual fund to 5% of assets due to potential cyclical periods.
  • Raymond Mathis, Standard & Poor's Equity Analyst, expects real estate funds to continue attracting investors due to familiarity with REITs and their potential to diversify portfolios.
  • Rosanne Pane, Mutual Fund Strategist at Standard & Poor's, notes that companies have begun adding real estate investment options to their pension plans in response to investor demand.

Statistics:

  • Real estate funds returned 36.60% to investors in 2003.
  • Standard & Poor's expects REITs to deliver returns of 11% in 2004.
  • Real estate investments have done well over the last three years, reversing the 4.10% loss of the S&P 500-index during the same period.
  • Mutual funds that invest in real estate returned an average of 14.20% over the five years ended in December, compared to 3% for domestic stock funds.

Sources:

  • Standard & Poor's website, http://www.standardandpoors.com/
  • Fund Advisor, a web-based reporting service on the mutual fund industry
  • Standard & Poor's mutual fund database of over 15,000 domestic mutual funds
  • The McGraw-Hill Companies, parent company of Standard & Poor's
  • Interview with Raymond Mathis, Standard & Poor's Equity Analyst
  • Interview with Rosanne Pane, Mutual Fund Strategist at Standard & Poor's