Admittedly, we are not definitionally in a “bear
market”. Bear markets are marked by
wide-spread pessimism, and usually begin with a sell-off of 20% from peak
values. That said, while we’re not
technically in bear territory, the past few trading days have left investors
shaken, if not stirred.
We have already told the story of how and why real estate
attenuates and diversifies a portfolio, and adds significant returns without
volatility in bull markets. But, what
happens when the bears come to visit?
Just a snapshot, I compared the value of our portfolio with the S&P
over the past 10 trading days, with both indices normalized to 100 as of the
close of business on 11/7. The results
Note that the ACCRE value is down about 1.3% over the past 10 trading days, but the S&P has declined about 6.1% — over 4 times the rate of decline. (By the way, ACCRE is up 2.4% so far in November!) Further, ACCRE has exhibited little if any volatility, but for the past two days. We expect ACCRE will turn in positive returns for the month, and stay in bull territory going forward. Those of us with ACCRE in our portfolios are stirred, but not shaken right now.
So, why the difference?
There are several important reasons why real estate attenuates a down
market. Three of these are:
Carefully chosen real estate is usually backed
by long-term commitments which transcend short bear runs. People still need places to live, to work, to
store stuff, and to go see the doctor.
If you chose the real estate carefully in a bull market, the same
fundamentals continue to hold in a bear market, at least in the intermediate
REITs are cash-cows, and behave a bit like
bonds. What’s more, this means that when
markets slope downward, there is at least a slight disincentive for regulators
to put the squeeze on interest rates, thus benefitting rate-sensitive
investments like REITs. (Note that the
similarly-rate-sensitive DJ Utilities are only down about 2.6% during this same
10-day trading window, and in fact have rebounded about 1.8% during this
Real estate is a serious, core investment, and
not a trading asset. As such, real
estate is the last thing sold off and continues to be accumulated by
serious-minded investors. Thus, real
estate values reflect actual long-term fundamentals and not the whims of the
trading strategy du jour.
We’re not knocking tech stocks, and truth be known, we
personally own a few. That said, our
serious money is, and continues to be, in real estate.
February was another great month for ACCRE. We continued to turn in positive returns: 1.07% for the month, for an annualized return of 13.91%. As we’ve noted before, a dollar invested in ACCRE since the inception would be worth $1.46 today, compared to $1.18 if that same dollar had been invested in the S&P. (We do not yet have statistics for the NAREIT index — those metrics typically lag a bit. We will update the report when the NAREIT numbers are available.)
On a risk-adjusted basis, ACCRE’s performance is stellar. The Sharpe Ratio is a measure of the risk-adjusted excess returns. That is, how much more would you have received in ACCRE, per unit of variability, than you would have received in a simple T-Bill investment? From the inception to the end of February, the ACCRE Sharpe Ratio is nearly three times that of the S&P, telling us not only that ACCRE’s returns are solid, but also that ACCRE continues to tell a great diversification story.
My apologies that this public update is late this month. The private update went out to subscribers on-time, but my travels and my “blog posts” don’t often line up with one another!
January was a great month for both ACCRE and for the market as a whole. Generally speaking, REITs did very well in January, although ACCRE continues to outpace the overall REIT market and the overall equities market.
On a “dollar invested” basis, ACCRE hit an all-time high of $1.45 since its inception on April 1, 2017. This translates to a cumulative return of 44.57% over the life of the fund. For comparison, the S&P had a cumulative return of 14.45% over that same period, and the NAREIT index was up 11.33% over the same time frame.
ACCRE continues to enjoy above-average risk adjusted returns, as measured by the Sharpe Ratio. Since 4/1/17, the S&P Sharpe Ratio (the ratio of cumulative excess returns to standard deviation of those excess returns) stood at 0.0176. ACCRE’s Sharpe Ratio, on the other hand, is 0.0639. In other words, on a risk-adjusted basis, ACCRE has enjoyed over 3 times the return as the S&P.
Finally, the correlation between ACCRE’s daily returns and the S&P daily returns over the life of the fund stands at 43.88%. In short, ACCRE continues to be a significant risk attenuator in a diversified portfolio.
Like everyone else, we’ve been wrestling with a bear in December. However, our investment philosophy appears to be serving us comparatively well for a fully-invested fund.
Total return for December was negative 4.74%, which compares favorably to the negative 9.18% recorded by the S&P benchmark. The NAREIT index also had a bad month, turning in a negative 7.73%. We continue to keep a little bit of powder dry for right now, and in fact may shed some assets in January to take advantage of perceived buying opportunities in other REIT shares.
A dollar invested in ACCRE at the inception is worth $1.33 today, compared to $1.06 if invested in the S&P and $1.01 if invested in a REIT index fund.
Our Sharpe Ratio continues to beat the S&P handily. We’re positive (about 5% excess returns when adjusted for volatility) while the excess return metric for the S&P has now turned negative.
Best wishes for a great new year, and we’ll keep you posted as and when we make fund adjustments.