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A Bronze-Rated REIT Strategy With a Rigorous Approach

Jonathan Wallace, CFA, CAIA

Jonathan Wallace: Bronze-rated Voya Real Estate is a U.S.-focused REIT strategy. This fund benefits from a stable, well-resourced management team that employs a rigorous investment approach that includes both top-down and bottom-up analysis. The expense ratio is reasonable and gives the fund a leg up on many of its actively managed U.S. REIT peers. While the fund has seen recent performance struggles, long-term performance has been solid.

Lead managers Ritson Ferguson and Joseph Smith have been at the helm since 1996 and 2005, respectively. They lead the CBRE Clarion team that steers this fund as well as its sibling strategy, Bronze-rated Voya Global Real Estate. This is one of the more tenured, deep, and stable teams in the REIT space.

The fund's process is fundamentally driven and employs quantitative and qualitative inputs. The top-down process considers value, growth, and market-segment factors equally to help determine how much capital to allocate to the fund's sectors. The bottom-up process includes the analyst team doing fundamental work on names, employing methods such as discounted cash flow and net asset value estimates. A model is also used to aid in the management of volatility, tracking error, and factor exposures.

The fund is benchmarked to the MSCI US REIT Index. There have been short-term struggles, largely due to underperformance in 2016. Still, the fund's long-term numbers have been solid. Since the fund's December 1996 inception through the end of December 2017, the fund's performance has outperformed the benchmark in every rolling 10-year period. The fund's Sharpe and Sortino ratios (measures of risk adjusted return) have also beaten the benchmark in all of those same rolling 10-year periods.

In concluding, the fund's strong management, solid process, low expenses, and long-term performance add up to a good option for investors.