A Multi-Factor® Approach to Global Real Estate
Gerstein Fisher offers investors a distinct, quantitatively constructed strategy for obtaining exposure to this fast-growing, portfolio-diversifying asset class.
Real estate investing today is more public, more global, more transparent, and more liquid than ever. Global real estate securities – in particular real estate investment trusts (REITs) – have played a key role in this transformation. US REITs and similar structures in other countries have provided a broad range of investors with cost-effective access to an asset class traditionally known for its illiquidity, opaque and infrequent pricing, and high minimum investment requirement.
What is a REIT?
A REIT is a company that owns (and often operates) income-producing real estate such as office and apartment buildings, warehouses, shopping malls, and hotels. By purchasing shares of REITs, which are traded on an exchange like stocks, individual investors can gain instant, diversified, liquid access to global commercial properties.
REITs are required to distribute 90% of their income back to investors; as a result, REITs have historically had a significantly higher yield than stocks.
REITs Go Global
While still a relatively new construct in the investment world, REITs have seen significant and rapid growth since they were first created in the United States in 1960. The first European REIT legislation was passed in 1969 in the Netherlands, and today more than 40 countries in North America, South America, Europe, Asia, Australia, Africa and the Middle East have REIT legislation in place.
The Gerstein Fisher Multi-Factor® Global Real Estate Securities Strategy
Gerstein Fisher seeks to provide investors with diversified exposure to the global real estate market through a structured, quantitative approach. We believe that investors should be compensated over the long term with the potential for returns greater than a benchmark by taking on strategic exposures to targeted risks. We apply the same Multi-Factor® framework to real estate investing as we do to our equity strategies, and we are one of very few managers in the marketplace to employ a quantitative approach in this asset class.
Examples of risk-factor tilts targeted in Gerstein Fisher’s Multi-Factor® Global Real Estate Securities strategy include a tilt to size (emphasis on smaller REITs), leverage (tilt towards less- levered REITs), and value (tilt towards REITs with a relatively larger discount to the value of their underlying real estate portfolios). The strategy also incorporates momentum, which can be defined as the tendency of securities to demonstrate consistent price performance over a given period of time, typically 3-12 months, and the tendency of past winners to keep winning and losers to keep losing relative to their peers.
Why Global REITs?
- Allow liquid, low-cost exposure to real estate with daily pricing
- Offer broad diversification across geographies, currencies, and property types
- Provide potential for long-term capital appreciation
- Offer portfolio diversification benefits owing to relatively low correlations with stocks very low correlations with bonds
- Generally expected to be a strong hedge against inflation (property managers can raise rents over time, and the values of the properties should also rise with inflation)