March 15, 2019

Investor Demand for Real Estate Funds Resurfaces in Q1

by Pat Keon, CFA.

Real estate funds have experienced net positive flows of $2.5 billion for the quarter to date. These net inflows mark the reversal of a long-term trend, as prior to this year the group had suffered seven consecutive quarterly net outflows for a total net negative flow of slightly more than $22.0 billion. Before this turnaround, real estate funds were coming off their second worst quarterly net outflows ever (-$7.2 billion) in Q4 2018, trailing only the $7.22 billion net outflow in Q2 2015. The Federal Reserve’s change in stance on interest rates this year has likely been a driver of this change in fund flows direction for real estate funds, as they are thought to be sensitive to rising interest rates. The Fed forecast two interest rate hikes for 2019 last December, but then backed off that projection in January by stating it will need to see evidence a rate hike is needed before taking any further action.

The entirety of the quarter’s net inflows emanated from real estate ETFs (+$3.0 billion), while real estate mutual funds have actually seen $460 million leave their coffers. The largest individual net positive flows for real estate ETFs belonged to Vanguard Real Estate Index Fund (VNQ, +$1.3 billion) and iShares US Real Estate ETF (IYR, +$648 million). On the mutual fund side of the equation, there were some significant net inflows at the fund level as Fidelity Real Estate Index Fund and Fidelity Advisor Real Estate Income Fund took in $219 million and $179 million in net new money, respectively. Overall though, the net outflows carried the day, driven by the net negative flows from T. Rowe Price Real Estate Fund (-$185 million), DFA Real Estate Securities Portfolio (-$132 million), JPMorgan Realty Income Fund (-$123 million), and PIMCO Real Estate Real Return Strategy Fund (-$116 million).






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