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An Unusual, but Effective, Real Estate Fund

David Kathman, CFA, Ph.D.

 

David Kathman: Fidelity Real Estate Income is an unusual fund in many ways, but it has a lot of good qualities that help earn it a Morningstar Analyst Rating of Bronze. It's had the same manager, Mark Snyderman, over its entire 15-year history, and his goal with this fund is to generate a higher yield than the average real estate stock fund but with less volatility and interest-rate sensitivity. 

In order to do that, he can own securities from across the capital spectrum; so in addition to REIT stocks, which make up less than a third of the portfolio, he also holds big chunks of real estate preferred securities, commercial mortgage-backed securities (or CMBS), and real estate corporate bonds. 

It's tough to properly evaluate all those asset classes for dozens of different real estate companies, but Snyderman has done a good job of it for a long time. When you compare this fund to a custom benchmark consisting of 20% REIT common stocks, 40% REIT preferreds, and 40% REIT corporate bonds, it has handily beaten that benchmark over the past 15 years, with a higher yield but quite a bit less volatility. On top of that, it's reasonably priced, which gives it a leg up over other real estate funds with a focus on yield.