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Value Line’s Real Estate objective group is one of our Specialty Equity objective groups.  It is, by design, very focused. Funds in this objective group must invest at least 30% of their assets in real estate or related companies, including real estate investment trusts, also known as REITs. Funds in this group can also invest in real estate mortgages. They can invest both domestically and internationally. These alternatives make this objective group more broadbased than might appear at first glance. Yet, the group’s relative performance is based on the aggregate performance of the real estate industry. 

Over the long term, the Real Estate objective group has been a strong performer relative to the broader market, as measured by the S&P 500 Index.  For the 10-year period ended October 31, 2010, the group had an annualized gain of 9.8%, while the S&P 500 Index reported an annualized loss of 0.1%.  For five years and three years, the group had a 1.9% return and an annualized loss of 6.4%, respectively, while the Index reported a 1.6% return and an annualized loss of 6.7%, respectively.  During the past year, the Real Estate objective group reported a return of 33.4%, compared with 16.5% for the S&P 500 Index.  The group has an average Risk Rank of 5, indicating that funds in this group are best suited for investors willing to take on very high risk in exchange for the possibility of top returns.

Year to date through October 31, 2010, the Real Estate objective group has performed very well, as compared to the broader market, outperforming the S&P 500 Index over that span.  It reported a gain of 20.6% compared with an increase of 7.8% for the S&P.

One fund with an excellent year-to-date return through October 31, 2010 is Grubb & Ellis AGA Realty Income Fund (GBEIX).  This fund seeks current income. Long-term capital appreciation is a secondary objective.  To achieve this objective, the fund normally invests at least 80% of its assets in dividend-paying common stocks and preferred stocks, including dividend-paying convertible preferred securities, of U.S. realty companies. These companies may be real estate investment trusts; real estate operating companies; real estate service companies; companies in the homebuilding, lodging, and hotel industries; and other companies engaged in the healthcare, gaming, retailing, restaurant, natural resources, and utility industries whose investments and balance sheets are real-estate intensive. Under normal circumstances, the fund may invest up to 20% of its assets in U.S. securities and instruments that are not considered realty companies.

The fund uses fundamental analysis in making its investment choices. It examines numerous criteria, including earnings growth potential; price to earnings, free cash flow, and net asset value; dividend yield and potential for growth; and return on assets/equity. Qualitative factors, such as quality of management and overall growth strategy, are also studied. Management may sell an investment if it no longer meets its criteria or when a more attractive investment opportunity arises.

Another fund with a relatively good return is Forward Strategic Realty Fund (KSRAX). This fund seeks total return through a combination of high current income relative to equity investment alternatives, plus long-term growth of capital. To achieve this objective, under normal conditions, it invests at least 80% of its total assets in securities of issuers engaged in the real estate industry, such as real estate investment trusts, master limited partnerships, and other real estate firms. These investments may include common equities, convertible bonds, preferred stock, and limited partnership interests. The fund may invest in U.S. and non-U.S. real estate securities, as well as companies in emerging market countries. The fund may sell securities short, trade options, and use margin to enhance its returns.

A third fund with a relatively good year-to-date return is Neuberger Berman Real Estate Fund (NREAX). This fund seeks total return through capital appreciation and current income.  It attempts to achieve this objective, under normal market conditions, by investing at least 80% of its assets in equity securities issued by real estate investment trusts and other securities issued by various real estate companies. The fund may also hold up to 20% of its assets in debt securities, which may be rated either investment grade or below investment grade.

Management uses fundamental analysis to select its investments. This includes assessing a company’s current financial condition and industry position. Also, a company’s growth potential, earnings estimates, and quality of management are evaluated. The fund normally holds its investments for the long term, but may sell securities regardless of how long they have been held if management finds an opportunity it believes is more compelling, or if the outlook on a company or the market changes.

In the table below, we have listed 10 top-performing funds through October 31, 2010 that we follow in our Fund Advisor database.

Top 10 Real Estate Company Funds Performance

Fund Name

Ticker

% Year-to-date

Total Return

% 1 Month

Total

Return

% 3 Month

Total

Return

% 6 Month

Total

Return

% 5 Year

Total

Return

Annualized

Grubb & Ellis AGA Realty Income A

GBEIX 

30.35

2.98

10.91

9.75

 

Forward Strategic Realty A

KSRAX 

28.46

3.39

6.54

6.73

-3.82

Spirit of America Real Estate Income & Growth A

SOAAX 

28.43

6.56

8.86

5.68

-3.23

Neuberger Berman Real Estate

NBRFX 

27.71

4.03

7.58

6.50

6.66

 

 

First American Real Estate Securities

 

FREAX 

26.66

4.83

8.40

7.38

6.11

 

Aston/Fortis Real Estate N

ARFCX 

25.87

3.82

7.94

7.26

1.81

JPMorgan US Real Estate A

SUSIX 

25.52

3.72

6.59

5.74

2.30

Morgan Stanley Real Estate A

REFAX 

25.56

3.90

7.20

5.41

3.88

Fidelity Real Estate Investment

FRESX 

25.83

4.99

7.90

6.36

2.72

Managers Real Estate Securities

MRESX 

25.71

4.64

8.55

7.13

5.43

Real Estate Objective Group

 

20.58

4.05

9.36

7.84

1.93