For all the legendary fortunes that have been made investing in real estate, mutual funds have never really found a home there.
Each time the idea of pooled property investments starts catching on with the public, it seems, along comes a recession or some other sort of debacle to disenchant everybody involved.
Of every $100 now entrusted to the mutual fund industry as a whole, less than 29 cents is held by funds specializing in real estate.
But, to hear some partisans tell it, an era of more enduring prosperity and popularity for real-estate funds may be dawning at last.
“Real estate is an important, and undervalued, asset class,” says Andrew Davis, portfolio manager of the Davis Real Estate Fund, which was launched three years ago as a member of the Davis Funds family in Santa Fe, N.M.
Real-estate funds gathered considerable momentum in 1996, when some 56 funds in that category tracked by Morningstar Inc. chalked up an average return of 31.12 percent, compared to 19.56 percent for the average domestic stock fund.
So far in 1997, real-estate funds have leveled off amid worries in some quarters that the mid-1990s rally in many real estate markets might have reached at least a short-term top.
As Barton Biggs, global investment strategist at the investment firm of Morgan Stanley & Co., puts it, “a lot of the easy money has been made.”
But Davis, for his part, argues that real estate funds still have considerable appeal.
“I think we’re a little more than halfway through the recovery,” he said in an interview. “Real estate is still cheap. This will be a much larger industry five years from now.”
Davis is quick to note that mutual funds investing in real estate should be viewed in a much different light from other types of property investments, such as home ownership.
Real-estate funds, for the most part, invest in a specialized form of investment company known as a real estate investment trust, or REIT, which buys and owns properties for the rental income they generate, as well as the hope of increases in property values.