The tumultuous debt market and concerns around the property markets are causing real estate mutual funds to take a beating, according to The Wall Street Journal.After seven year of remarkable gains, REITs are showing huge losses. Some funds are posting losses of 15% over just the past month.
The losses are not good news for investors who have poured nearly $18 billion into these funds over the past year and a half. Investors have put a record $11.2 billion into real estate mutual funds last year, and $6.9 billion during the first six months of this year, according to Financial Research Corp.
As the months went by this year, there were some concerns regarding the residential real estate market, but portfolio managers were optimistic that areas such as the commercial space would remain strong. REITs also got a huge boon from the private equity boom.
Now, the credit woes are driving up the cost of financing commercial real-estate purchases and in turn, crimped the profit outlook.
After years of big gains, REITs became vulnerable to big declines, said Morningstar Analyst John Coumarianos. “Almost across the board, they had become very overvalued,” he said.
Some investors looking to get out have forced fund managers to sell holdings to meet redemptions. The average U.S. real estate fund has lost 17.2 % over the past three months and is down 16.5% so far this year, according to Morningstar.
Global real estate funds are performing a little bit better. The average global real estate fund, which invests in U.S. and international stocks, has lost 15.2% over the past three months and are down 10.3% this year.
Investors leaving the sector, though, are only complicating matters further. More than $400 million has been withdrawn from real estate funds in the past two weeks, which have roughly $36 billion in total assets, according to AMG Data Services.
“That’s been a definite factor in the decline,” said Alex Peters, manager at Franklin Real Estate Securities Fund.
The fund that has plunged the lowest has been the $70 million Munder Real Estate Equity Investment fund, which is down 25% this year, many of the losses happening in the past few weeks.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.