|The REIT Mix |
Adding a bit of exposure to real-estate investment trusts over the past three decades would have increased an investor's returns while trimming the risk profile of a portfolio.
|50% Stocks |
|45% Stocks |
|40% Stocks |
|1972-2000 Annual Return||11.8%||12%||12.2%|
|1972-2000 Risk Level||11.2%||10.9%||10.8%|
Without further ado, here are five solid offerings from which to choose in the real-estate fund category.
1. (TRREX) T. Rowe Price Real EstateThe T. Rowe Price Real Estate fund is a safe and sound all-around bet for most investors looking to add real estate to their portfolio. Among the benefits of the $160 million-in-assets fund: A solid manager in David Lee and the backing of a stellar fund shop in T. Rowe; no load, or sales fee, plus an expense ratio of 1%, below the 1.64% category average; and performance that has consistently outpaced the majority of its peers. The fund has returned 15.15% a year on average over the past three years and 8.04% a year over the past five years -- placing it in the top 31% and 21% of all real-estate funds, according to Morningstar. The fund's 4.94% dividend yield helps ensure steady returns. Like most funds in the category, its bets are fairly concentrated: It holds 37 stocks in the portfolio, with top-two holdings Equity Office Properties ( EOP) and Vornado Realty ( VNO) alone making up 11% of the fund, according to Morningstar. However, Lee, at the helm since the fund's 1997 inception, takes a risk-averse, value-oriented approach to the group, which has led to steadier, safer returns than many of the fund's peers.
2. (TAREX) Third Avenue Real Estate ValueThe Third Avenue Real Estate Value fund, managed by Michael Winer since its October 1998 inception, aims to sidestep some of the volatility of the boom-and-bust real-estate market by focusing extensively on undervalued stocks. So far, so good: The $357 million fund has been a consistent outperformer: Its three-year average annual return of 17.19% ranks it among the top 10% of its peers, according to Morningstar. The no-load fund also sports a below-average expense ratio of 1.22%. While the fund is very concentrated -- the top 10 holdings make up 59% of the fund's assets -- Winer tries to spread the assets around beyond the standard REIT fare, picking up companies from industries such as lumber and hotels, which own substantial real-estate properties. On the downside, the move beyond REITs has kept the fund's dividend yield around 1%. However, Winer so far has shown a knack for picking undervalued companies that have more than compensated.