Subprime Loan Defaults Hitting Real Estate Funds

At first, mutual fund managers said they didn’t think the subprime loan disaster would affect them. But now, real estate funds, even though many of them are concentrated on commercial investments, are feeling the heat, The Wall Street Journal reports. In addition, so are funds with large exposure to homebuilder companies or regional banks that had been making the loans. What’s impacting these funds—particularly real estate funds—is the concern of investors that defaults on risky mortgages will spread from residential investments to commercial. In addition, because real estate funds have had such a tremendous run-up in recent years, some believe their day in the sun is reaching an end. In the past month, real estate funds have declined an average of 4.7%. But because they were the best-performing category in 2006, they are still up 5.16% year to date and 25.5% for the 12 months ended March 21. “There’s been a lot of talk on the backburner [about] when is real estate going to cool,” said Andrew Gogerty, a Morningstar analyst. “This could be the trigger.” Nonetheless, stalwarts think the effect will be short-lived. “The knee-jerk reaction by the market is to correct anything that is related to real estate,” said Jay Rosenberg¸ co-manager of the First American Real Estate Securities Fund. “The stock price reaction is a bit overdone,” agreed Brad Hamilton, co-manager of the Weitz Value Fund.   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.