In last week’s Fund update, we noted that the NAREIT Index was not yet available. We’ve updated the Fund metrics with that data now. REITs in general had a very good month, with a monthly return of 2.33%. For the NAREIT Index, this is a bit of a return to form. REITs in general have performed very well since the recession, but have been fairly flat for the last two years.
We have also begun calculating the Sharpe Ratio on an ongoing basis. For those of you not familiar with this, the Sharpe Ratio is the measure of excess returns (fund returns minus the risk-free return) divided by the standard deviation of those excess returns. In short, it gives a comparative measure of the returns of the fund on a risk-adjusted basis. How much in the way of returns are we getting for every unit of risk (measured as the degree of volatility)? The Sharpe Ratio is clearly most useful when comparing two funds — in this case the ACCRE Fund versus the S&P 500. For our purposes, we’ve used daily returns for every day that we have a 13-week T-bill price. We’ve taken the bank discount rate on 13-week T-bills and converted those to a daily rate.
As you can see, the ACCRE Sharpe Ratio is substantially higher than the S&P rate for the same period. When a fund like ACCRE has substantially higher raw returns, such as we have here, the Sharpe Ratio helps account for the somewhat higher volatility associated with a fast growing fund. By the way, the raw returns ratio for ACCRE (the ratio of actual daily returns to the standard deviation of those raw returns) is also higher than the S&P: 9.6% versus 8.5%.