Q: What is your real estate investment process?
A: For U.S. real estate we utilize a top-down and bottom-up approach. Top-down, we look at macro events that factor into the performance of real estate on both the property sector and regions of the country. Bottom-up (in both U.S. and non-U.S. portfolios), we look at ratios such as price to net asset value, price to earnings and dividend safety for the portfolio. In non-U.S. portfolios, we look top-down at three regions: Europe, the Americas and Asia Pacific. We are scanning for attractive regions based on the economy, policy measures and real estate fundamentals.
Q: Why are U.S. real estate investments attractive?
A: There are a few reasons:
- Performance—we think commercial real estate fundamentals are currently in very good shape.
- REITs over the long-term as a diversification strategy have a very low correlation to stocks and bonds.
- Real estate, as a ‘hard’ asset, should do well in a period of inflation.
Q: Why are non-U.S. real estate investments attractive?
A: Some of the non-U.S. markets are less efficiently priced than the U.S., so there is a research opportunity there.
Q: Where are you finding real estate opportunities?
A: We are finding opportunities in the U.S. because it is a beacon of safety, and in some of the more cyclical property types domestically such as hotels, regional malls and industrial properties because they have shorter leases and should benefit as the economy grows. Non-U.S., we are overweight Emerging Markets—especially Asia—many of these regions, such as the Philippines and Malaysia, have budget surpluses and government policies that are pro-business and pro-real estate.
Q: What role do REITs play in a diversified portfolio?
A: We recommend a 5% to 10% weighting in real estate as part of an asset allocation strategy, because of its low correlation to stocks and bonds and solid income.
Q: When do you sell a stock?
A: We use a daily valuation model to guide us when to sell a stock. We rank the stocks from 1 to 100, with the top 33% being buys, the middle 33% being holds and the bottom 33% being sells.
Real estate mutual funds may be subject to many of the same risks as a direct investment in real estate. These risks include changes in economic conditions, interest rates, property values, property tax increases, overbuilding and increased competition, environmental contamination, zoning and natural disasters. This is due to the fact that the value of the fund’s investments may be affected by the value of the real estate owned by the companies in which it invests. To the extent the fund invests in companies that make loans to real estate companies, the fund also may be subject to interest rate risk and credit risk.
The opinions expressed are those of our investment professionals, and are no guarantee of the future performance of any American Century Investments portfolio. This information is not intended to serve as investment advice; it is for educational purposes only.