Real Estate Fund Comparison

We outline below some basic qualitative characteristics of a fund that holds a low Zenith Score and one that holds a high Zenith score. It is interesting to note that the lowly scored fund has about 1.5x more assets.

Low score Real Estate Fund

  • They are 80% invested in REITS under normal conditions-This is too high and can limit the opportunity set.
  • Property sector selection into areas such as office, malls, self storage-While appealing as an over or underweight technique, this can be costly and their weights are not varying enough. Not enough tracking error for Zenith.
  • Bottom up security selection is utilized to identify the best in each sector. This is not always value additive.
  • Benchmark sensitive portfolio construction-We view this as dependency on benchmark weighting as their names are highly similar to most REIT ETFs.
  • They have added value at times with sector and security selection but not as consistently as we would prefer. It often times detracts and at a high fee structure.
  • They have a high turnover of investments and does not fit a benchmark hugging theme. They are attempting to invest with a keen sense of the benchmark but at the same time trying to adeptly over and underweight whole sectors.
  • This is an expensive fund with high turnover with a constrained mandate.
  • If REITs are overvalued, they are “forced” to make placements.
  • That can mean buying REITs with a historically low dividend yield and companies trading at a premium to Net Asset Value(NAV).


High score Real Estate Fund

  • Broad and flexible mandate beyond REITS and can include;
    • Equity and debt securities (debt no more than 20% of total assets)
    • International companies (up to 25% of total assets)
    • Companies of all market capitalizations
    • Since REITS are approximately 48% of US real estate related companies, they go beyond REITS in their investment universe to potentially add value and to decrease risk when REITs are not compelling investments.

 Examples of the broader opportunity set include;

  • hotel and leisure
  • real estate service companies
  • real estate operating companies
  • They posses a thesis with a number of underpinnings to develop the portfolio and their performance is dependent on these major areas;
  • continued strength in overall corporate credit
  • continued housing strength
  • continued supply constraints with regard to hotel rooms and overall commercial real estate building.
  • Despite these risks we like the fact that they believe in the companies operationally, thematically and from a disciplined intrinsic value approach.
  • They deliver solid creative performance with a reasonable fee given their broad focus and with a lower turnover.


REITs and Real Estate have done exceptional since the 2008 disaster and our favored fund has benefited from some seriously strong tailwinds. However, we do believe that it is an excellent time to examine your current real estate fund especially if it is REIT centric and to explore other funds that may have a more robust process and opportunity set.


Tom Koehler-CIO