A distinct memory I have from the old Fidelity days was being visited by the fund manager who oversaw the Fidelity Real Estate Investment Portfolio. The interaction took place not long after the dot.com/9/11 stock market bust in the early 2000s. This was a big deal. In Denver (considered part of the vast western wasteland by the powers that be in Boston) we rarely got in person attention from an actual mutual fund manager.
It was remarkable because the gentleman was positively sulky that no one paid attention to the great returns and income producing opportunities of his fund. Side note, except for Ron Barron, mutual fund managers are not known for their stellar personalities.
It was also noteworthy because I hadn’t known much about Real Estate Investment Trusts before. Turns out, the manager was right about not getting enough attention. Real estate funds deserve a look.
Without getting too technical, Real Estate Investment Trusts are pools of commercial real estate investments. The rents paid on office parks, malls, Alzheimer’s homes, pot growing warehouses, apartment buildings, and on and on, go to the Trust that owns the real estate. Those rents get passed through to the investors of the trusts.
REIT mutual funds are pools of REITs, similar to a US Stock fund being a pool of many US companies bought and sold by the fund manager.
Real Estate mutual funds can be a great portfolio diversifier. They don’t follow the stock market or the bond market or the international market. They do their own thing. Lately that thing hasn’t been doing too well. REIT fund prices have been pretty beaten down. That doesn’t mean they can’t be good in the long run.
Remember, if you don’t have something you hate in your portfolio at all times, you aren’t truly diversified. REIT fund owners, this might be an unpopular line item in your portfolio. However, it could also be a great time to buy while prices are down.
A word of caution: REIT funds, by their very nature of returning rent payments to investors, throw off a lot of income. If you are in a higher tax bracket you may consider these mostly for your retirement accounts.
If you’d like more information on how or why to incorporate Real Estate Investment Trust funds into your portfolio, contact me for an appointment.