Investors don't have enough exposure to real estate: Portfolio manager

Not all U.S. assets are sleepy this year.

Real estate investment trusts are beating stocks in 2016. The Dow Jones Equity REIT index (^DJR) is up 7% year-to-date, double the return of the S&P 500 (^GSPC).

Real estate itself makes up the majority of most Americans’ assets. But REITs are a relatively small part of their financial assets, according to Gregg Fisher, founder and chief investment officer at Gerstein Fisher.

Fisher, who manages a global real estate fund (GFMRX), recommends an allocation of REITs of between 5% and 15% of assets. He notes that REITs currently make up just 3% all market assets based on total capitalization. He anticipates that real estate will receive more attention when it is separated from the S&P 500’s financial sector at the end of the summer.

“The sunlight’s really going to be shined on the real estate sector,” he said. “We’ll now have a better understanding of what people’s under- and overexposures are in their portfolios because of this.”

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Fisher selects REITs for his funds using what’s called a multifactor approach. That strategy involves creating regression models to reveal various exposures those REITs have to factor, such as segments, market cap or leverage. Adding or subtracting certain types of REITs will increase or decrease the overall portfolio’s factor exposures, in the hopes of outperforming benchmarks.

Since its inception in 2013, Fisher’s real estate fund has beaten its official benchmark, the FTSE EPRA/NAREIT Developed Index. However, in that time, it has returned 9% compared to the Dow Jones Equity REIT index’s 12%, though the two tend to move fairly closely.

One segment Fisher has a bullish outlook on are properties with data storage facilities. “Everything moving to the cloud and the retail landscape [is] changing,” he said. “All these computers have to sit somewhere and this has been an important theme for the last year or two… We remain pretty comfortable with this idea of data storage as an important theme as we look forward.”

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