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This Gold-Rated Fund Gets REITs Right

David Kathman, CFA, Ph.D.

David Kathman: This week's [Morningstar] Medalist is T. Rowe Price Real Estate (TRREX). It's one of only two Gold-rated funds in the real estate category and the only actively managed fund. The only other Gold-rated fund in the category is Vanguard REIT Index.

This fund has been around since 1997. It's been managed that whole time by David Lee, using a strategy that focuses on the quality of the underlying real estate. He tries to own REITs that are cheap relative to the value of that underlying real estate. Now, this strategy has a long-term focus. And that means that sometimes in the short term, especially when the REIT market is kind of frothy, this fund can underperform or perform in a mediocre way.

But over the long term, it's been a really solid performer. It has easily beaten the category over the past 15 years. It's also very cheap. It's actually the cheapest actively managed fund in the category. The fund has lost a couple of analysts over the past six months, but [David Lee] has been hiring new people and still has some experienced people helping him. Overall, this is a really solid choice in the real estate category.