Global real estate stocks staged another rally in the first quarter of 2021, extending the strong but choppy recovery that began in the second quarter of 2020, as the successful roll-out of Covid-19 vaccination programs fueled investor optimism and offset concerns over the impact of rising infection rates on the global economy. The FTSE EPRA Nareit Developed Index (the “Index”) had a total return of 6.11% for the quarter, while the James Alpha Global Real Estate Investments Fund (the “Fund”) posted a total net return of 8.83%, outperforming the Index by 272 basis points.
During the quarter, capital markets were bolstered by the effective distribution of the Pfizer and Moderna vaccines to at-risk populations, as well as the FDA’s approval of a third vaccine produced by Johnson & Johnson. Markets reacted positively as the supply chain in the U.S. appeared equipped to manufacture and distribute vaccinations to the majority of the adult population by the summer, illuminating a more definitive timeline to eventual herd immunity and an end to social distancing.
In light of the positive vaccine news and Congress’ approval of a $1.9 trillion economic relief package, the global REIT market continued to turn its attention to more cyclical, economically sensitive property sectors. Property sectors with direct exposure to consumer spending, such as Retail and Lodging, whose fundamentals have faced the most significant headwinds during the pandemic, were buoyed by a steady rotation of capital as the market recognized the pent-up demand that will drive cash flows in these property types as the pandemic begins to recede.
While the advent of the vaccines and a more stable geopolitical environment have reduced some of the most significant risk factors faced by investors in recent months, our expectation is that the market will continue to experience episodic periods of heightened volatility in response to the exogenous risk factors that continue to influence market behavior, including:
- The size, timing and, targeting of additional fiscal stimulus
- The resurgence of Covid-19 vs. the pace of vaccine production, distribution and adoption – with the risk of more social restrictions impacting global economic growth
- S. – China tensions: trade relations plus national security
Over the quarter, the Fund benefited from our well-timed investments in the Lodging sector, where we harvested gains generated by our opportunistic investments in selected blue-chip companies with franchisor/brand-driven business models and “fortress” balance sheets. Our stock selection in the Diversified and Residential sectors were also contributors to relative returns.
As we look ahead, the trajectory of global REIT prices in the coming months will reflect the market’s fixation on the tension between the vaccine-induced return to normal (albeit, a “normal 2.0” in the wake of systemic societal changes created or accelerated by the pandemic) and the near-term economic impact of the pandemic, resulting in elevated volatility that will create compelling buying, and in turn, selling opportunities for actively-managed portfolios like the Fund’s.
Our high conviction, benchmark-agnostic investment approach allows us to maintain a focus on identifying and owning what we believe to be the highest-quality companies in our investable universe. We have confidence in our fundamental research, and equal comfort with the management teams of the companies we own.
While the pandemic’s impact will continue to create challenging economic conditions in the near-term, we feel our portfolios are well-positioned to weather the storm and participate in the recovery as the spread of the virus stabilizes and then recedes and investor attention continues its turn back to fundamentals.
|A Shares (NAV)||8.68||49.41||10.62||9.26||8.47||9.98||10/26/2009*|
|A Shares with Max Sales Load||2.44||40.85||8.46||7.98||7.84||9.41||10/26/2009*|
|Morningstar Global Real Estate Category||5.13||34.6||5.41||4.97||5.71||–|
|FTSE EPRA Nareit Developed Index||6.11||35.95||6.07||4.85||6.64||–|
*The Fund operated as a closed-end interval investment company from the listed inception date until May 13, 2011, when it was converted to an open-end investment company (commonly referred to as a “mutual fund”).
The FTSE EPRA Nareit Developed Global Real Estate Index is comprised of publicly-traded REIT securities in developed countries worldwide which have met certain financial criteria for inclusion in the Index. Each company must derive the bulk of its earnings through the ownership, management, or development of income-producing commercial real estate.
Source: Morningstar Direct. Performance data quoted above is historical. Past performance does not guarantee future results and current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate, so that shares when redeemed may be worth more or less than their original cost. Investors cannot directly invest in an index, and unmanaged index returns do not reflect any fees, expenses, or sales charges. The Fund’s management has contractually waived a portion of its management fees until March 19, 2023 for I Shares, A Shares, C Shares, and R6 Shares. The performance shown reflects the waivers without which the performance would have been lower. Total annual operating expenses before the expense reduction/reimbursement are 1.19% for I Shares, 1.44% for A Shares, 2.19% for C Shares, and 1.21% for R6 Shares; total annual operating expenses after the expense reduction/ reimbursement are 1.05% for I Shares, 1.44% for A Shares, 2.19% for C Shares, and 0.95% for R6 Shares. 5.75% is the maximum sales charge on purchases of A Shares. For performance information current to the most recent month-end, please call 888.814.8180.
1 The Fund’s investment adviser has contractually agreed to reduce and/or absorb expenses until at least March 19, 2023 for I, A, C, and R6 Shares, to ensure that net annual operating expenses of the fund will not exceed 1.04%, 1.69%, 2.37%, and 0.94%, respectively, subject to possible recoupment from the Fund in future years.
ABOUT THE AUTHOR, ANDREW J. DUFFY, CFA®
Andrew Duffy is the Senior Portfolio Manager of the James Alpha Global Real Estate Investments Fund, a mutual fund that invests in publicly-traded global REIT securities. Mr. Duffy has more than 28 years of global real estate securities investment experience.
Mr. Duffy co-founded Ranger Global Real Estate Advisors, LLC in 2016 and serves as the Chief Investment Officer. Prior he served as the Senior Portfolio Manager with Ascent Investment Advisors. Prior to joining Ascent Investment Advisors, Mr. Duffy was a Managing Director with Citigroup Principal Strategies, where he managed a long/short portfolio of global real estate securities. From February 2005 until January 2008, he was with Hunter Global Investors, L.P. where he was the Co‐Portfolio Manager of the Hunter Global Real Estate Fund, LP. Before that he was a portfolio manager at TIAA‐CREF for more than six years, during which time he was directly responsible for managing more than $3 billion in global real estate equity and debt securities. Between 1993 and 1999, Mr. Duffy was a Senior Research Analyst at Eagle Asset Management, where he launched and managed a dedicated real estate securities investment program.
Prior to his career in investments, Mr. Duffy served for five years as an officer in the United States Army, where his assignments included serving in the 7th Special Forces Group and the 82nd Airborne Division. Mr. Duffy received a BS from the United States Military Academy at West Point in 1979 as a Distinguished Graduate (top 5% of class) and an MBA from Harvard Business School in 1986. He earned the Chartered Financial Analyst® designation in 1996.
Past performance is not a guarantee nor a reliable indicator of future results. As with any investment, there are risks. There is no assurance that any portfolio will achieve its investment objective. Mutual funds involve risk, including possible loss of principal. The James Alpha Funds are distributed by Ultimus Fund Distributors, LLC. James Alpha Advisors, LLC and Ranger Global Real Estate Advisors, LLC are not affiliated with Ultimus Fund Distributors, LLC, member FINRA/SIPC. Certain associates of James Alpha Advisors, LLC are securities registered with FDX Capital LLC, member FINRA/SIPC.
Risks and Disclosures
There is no assurance that the portfolio will achieve its investment objective. The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over short or long periods, adversely affecting the value of an investment. Risks of one’s ownership are similar to those associated with direct ownership of real estate, such as changes in real estate values, interest rates, cash flow of underlying real estate assets, supply and demand, and the creditworthiness of the issuer. International investing poses special risks, including currency fluctuations and economic and political risks not found in investments that are solely domestic. Incorporating alternative investments into a portfolio presents the opportunity for significant losses including in some cases, losses which exceed the principal amount invested. Also, some alternative investments have experienced periods of extreme volatility and in general, are not suitable for all investors. Asset allocation and diversification strategies do not ensure profit or protect against loss in declining markets.
James Alpha Advisors, LLC serves as the Advisor to the James Alpha family of mutual funds and related portfolios. Their form ADV can be found at www.adviserinfo.sec.gov. Please consider the charges, risks, expenses, and investment objectives carefully before investing. Please see prospectus, or if available, a summary prospectus containing this and other important information. Read it carefully before you invest or send money. Mutual Funds are distributed by Ultimus Fund Distributors, LLC. Members of FINRA and SIPC.
Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund. This and other information is contained in the Fund’s prospectus, which can be obtained by calling 888.814.8180 and should be read carefully before investing. Additional Fund literature may be obtained by visiting www.JamesAlphaAdvisors.com.
As with any investment, there are multiple risks associated with REITs. Risks include declines from deteriorating economic conditions, changes in the value of the underlying property, and defaults by borrowers, to name a few. Please see the prospectus for a full disclosure of all risks and fees.
THE OPINIONS STATED HEREIN ARE THAT OF THE AUTHOR AND ARE NOT REPRESENTATIVE OF THE COMPANY. NOTHING WRITTEN IN THIS COMMENTARY OR WHITE PAPER SHOULD BE CONSTRUED AS FACT, PREDICTION OF FUTURE PERFORMANCE OR RESULTS, OR A SOLICITATION TO INVEST IN ANY SECURITY.