Nareit tracks quarterly investment holdings for the 27 largest actively managed real estate investment funds focusing on REIT investment for insight on expert investor sentiment. Please note though, one smaller fund did not report fourth quarter data for this analysis.
In the fourth quarter of 2023, active managers increased allocations in telecommunications, gaming, and specialty, bringing all three property sectors’ asset shares close to their FTSE Nareit All Equity REITs index weights. All three property sector shares were up quarter over quarter and year over year. These gains have put all three less than half a percentage point below their index weights, mitigating their historical underweighting.
In terms of returns, active managers’ increase in specialty in the third quarter of 2023 by 0.1 percentage point matched the sector outperforming the index by 4.5 percentage points in the fourth quarter. Funds have been cutting their share of residential in recent quarters, and the sector strongly underperformed the All Equity index in the fourth quarter. Residential’s weight in the funds was down 2.2 percentage points in the third quarter of 2023 and a further 3.4 percentage points in the fourth. The property sector underperformed the index by 8.5 percentage points.
The table above shows the share of each equity REIT property sector by assets under management.
- Traditional sectors residential, retail, and industrial have the highest investments in the funds with residential at 18% in 2023Q4, retail edging out industrial this quarter at 15%, and industrial at 14%. However, office remains under 3%.
- Telecommunications, data centers, and health care each have more than a 10% share of assets.
- Diversified and timber have less than a 1% share.
The table and chart above show the change in property sector asset share by quarter and from the previous year.
- Specialty had the largest year-over-year and quarter-over-quarter change in the final quarter of 2023. The specialty sector increased 2.1 percentage points from the previous year and 1.5 percentage points from the previous quarter. Telecommunications, gaming, diversified, timber, retail, lodging/resorts, and self-storage were all up for the quarter.
- Telecommunications and gaming also showed gains for both the year and the quarter. Telecommunications increased its weight by 2.1 percentage points and gaming increased by 1.2 percentage points from the previous year. They were up 1.1 percentage points and 0.5 from the previous quarter respectively.
- Diversified saw an increase in weight for the second quarter in a row after steady quarterly weight decreases since the second quarter of 2022.
- Industrial is now the third most heavily weighted sector, after three consecutive quarters of decreases in weight. Industrial was down another 0.72 percentage points in the fourth quarter, bringing it down 0.75 percentage points for the year.
- Residential saw the largest decrease in quarter-over-quarter and year-over-year weights following a large cut in the third quarter. Funds lowered their weights by another 2.7 percentage points for the fourth quarter, putting the sector down 3.4 percentage points for the year.
The chart and table above compare the weight of the sectors in actively managed funds to the weight of the sectors in the All Equity index.
- Residential’s strong overweight in the funds has been steadily decreasing, going from 7.2 percentage points overweight compared to the index in the fourth quarter of 2022, down to 4.4 percentage points overweight in fourth quarter 2023.
- Telecommunications, gaming, and specialty have all been historically underweight in the funds, but increasing allocations to each have brought them near parity to the index.
- Telecommunications’ large gains for the quarter and the year has put it only 0.3 percentage points underweight compared to 4.3 percentage points underweight in fourth quarter 2022.
- Specialty has gone from 2 percentage points underweight in fourth quarter 2022 to 0.2 percentage points underweight.
- Gaming has gone from 1.4 percentage points underweight to .01 percentage points underweight.
- Office and self-storage are the most underweight sectors. Office has remained underweight since 2022 and is 2.3 percentage points underweight in fourth quarter 2023. Despite the small increase in fourth quarter 2023, self-storage is underweight by more than 2 percentage points.
For more information on the active manager project, see: Reading the Real Estate Market: Tracking Active Managers’ Allocations Over Time.