Asset size makes it difficult for this Bronze-rated fund to buy REITs at the lower end of the market-cap spectrum.
The following is our latest Fund Analyst Report for Cohen & Steers Realty Shares CSRSX.
Cohen & Steers Realty Shares is the flagship strategy of the first investment company focused on listed real estate. As a proven option, it receives a Morningstar Analyst Rating of Bronze.
The fund is challenged by its size. Including its clone Cohen & Steers Instl Realty Shares CSRIX, the strategy currently has $7.3 billion in assets and is one of the biggest actively managed offerings in the domestic real estate Morningstar Category. That makes it difficult to buy REITs at the lower end of the market-cap spectrum. Sibling Cohen & Steers Real Estate Securities CSEIX, a more opportunistic version of the same approach with a $3.7 billion asset base, offers a comparison. While the difference in market-cap tilts between the two strategies is sometimes minimal, it can be pronounced. In September 2014, Cohen & Steers Realty Shares had a 24.8% combined stake in small- and micro-cap real estate stocks, versus 35.4% for Cohen & Steers Real Estate Securities.
This fund's less aggressive profile hasn't been an advantage against its smaller sibling since 2011, but it has subsequently fared better than most peers. The fund had a top-third calendar-year finish in 2014's rally, when real estate stocks received a boost from an unexpected drop in interest rates. It also placed in the category's top decile in 2015, amidst considerable turbulence. Although the fund struggled in 2016, as office REITs like top-10 holding SL Green Realty Corp SLG, weighed on results, it still has a competitive record under lead manager Thomas Bohjalian. From his mid-2012 start date through May 2017, the fund's top-quintile 10.4% annualized gain falls only 5 basis points shy of the FTSE NAREIT Equity REITs Index.
There's reason to believe Bohjalian can overtake the index over a full market cycle. He's done that as the lead manager of Cohen & Steers Real Estate Securities since early 2008. He and his predecessors here use a top-down and bottom-up approach that has outperformed since the strategy's 1991 inception. And fees are reasonable for active management, which should keep the fund in the hunt.
Process Pillar: Positive | Alec Lucas, Ph.D. 06/07/2017
Lead manager Thomas Bohjalian and his team methodically integrate top-down and bottom-up elements in their approach, earning the fund a Positive Process rating. They meet weekly with firm economist Michael Penn to discuss business news and economic data in order to formulate and refine their macroeconomic views. Taking into account real estate market fundamentals, capital market conditions, and regulatory environments, these views aid judgments about individual securities.
Security selection starts with the analysts, whose coverage responsibilities are divided by property sector. They engage in fundamental research, evaluating each firm's management, balance sheet, and properties. All of this helps them calculate net asset value and cash flow growth estimates using cap rates and internal rates of return. A proprietary valuation model then quantifies each stock's price relative to NAV and future dividends, while also recommending security weightings. Informed by macroeconomic assumptions, such as employment expectations, the managers buy stocks with attractive prices compared with underlying assets, projected growth, and other real estate securities. They sell when stocks become expensive from those same vantage points or fundamentals deteriorate.
Turnover tends to be above most peers'. Under Bohjalian, it has been about 50%-80%, versus 45%-50% for the category median.