The Case for and against Investing in Real Estate Funds

By Linda Stern 1996, Reuters News Service | St Louis Post-Dispatch (MO), August 19, 1996 | Go to article overview

The Case for and against Investing in Real Estate Funds


Linda Stern 1996, Reuters News Service, St Louis Post-Dispatch (MO)


Pioneer Mutual Funds in Boston just published a paper called "Why Buy a Real Estate Mutual Fund?" Sheldon Jacobs, the independent publisher of the No-Load Fund Investor newsletter, plugs real estate funds in his current issue.

Meridian Investment Management, a Denver money management firm, recently upped its allocation of real estate investments from a typical 10 percent to about 16 percent of customer portfolios.

Why, when many of us walk past empty storefronts and unsold houses every day, are all of these people talking about real estate? In the grand tradition of trying to buy before the rush, they perceive that the time is ripe for real estate gains.

There's evidence to suggest they may be right. Except in the troubled retail industry market, vacancy rates have been falling steadily through most of the '90s.

Rents have been going up, and even the pace of rent increases is rising, said Robert Benson, portfolio manager of the Pioneer Real Estate Shares fund.

Jacobs suggests that most commercial real estate is attractively priced and has both growth and income potential.

Others have suggested that real estate investments may benefit from lower electric rates spawned by the new competition among utilities.

Not everyone agrees. John Teall, a spokesman for the Lipper Analytical mutual fund research firm, calls real estate funds "the great inflation play that doesn't work."

So far this year, real estate funds have returned 7.56 percent to investors, compared with gold funds' 15.51 percent return and stock funds' 8.07 percent return, he points out.

The problem, from Teall's perspective, is the vast number of real estate funds and the vast building capacity that have come to market in the last few years. Lipper now tracks 53 funds, and those funds control $2. …

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