Nuveen adds direct real estate to target-date funds

Company is leveraging the expertise of TIAA-CREF to reduce portfolio volatility

Apr 24, 2017 @ 11:22 am

By Jeff Benjamin

There are plenty of reasons why owning direct real estate inside a registered mutual fund could present challenges to a portfolio manager, but Nuveen is focusing on the potential upside by adding real estate to it TIAA-CREF Life Cycle Funds.

Since securing regulatory approval last fall, Nuveen's target-date funds have built up a 1% position in individual properties, with a goal of reaching a 5% weighting in direct real estate within two years.

"We believe exposure to direct real estate alongside investments in equity and fixed income is central to building a well-diversified, long-term portfolio for investors," said John Cunniff, portfolio manager of TIAA-CREF's target-date fund series.

The appeal of direct real estate ownership, as opposed to a real estate investment trust, is similar to that of an alternative or hedging strategy, according to Mr. Cunniff.

Unlike REITs, which can be as volatile as equities, the reduced liquidity of individual real estate holdings can act as a ballast for a portfolio by reducing overall volatility while adding diversification. Because of the lower turnover of real estate, the price presents a more stable path, which Nuveen is hoping will help calm investor nerves during times of market turbulence.

But a smoother price trend doesn't necessarily mean a trade-off of lower returns, according TIAA-CREF's research.

As a diversification tool, over the 20-year period through 2016, direct real estate had a 0.23 correlation to U.S. equities, a 0.12 correlation to non-U.S. equities, a 0.13 correlation to REITs, and a negative 0.03 correlation to U.S bonds.

In terms of performance over the same period, direct real estate produced an annualized return of 9.3%, which compares to 7.9% for U.S. equities, 5.1% for non-U.S. equities, 9.7% for REITs and 5.3% for U.S. bonds.

The flipside of holding direct real estate in a registered fund is that the portfolio managers could find themselves in a tight spot in the event of a market selloff, according Todd Rosenbluth, director of mutual fund and ETF research at CFRA.

"Real estate can offer diversification, but any nonlisted investment comes with some liquidity risk," he said.

Not all fund complexes would have the resources or capabilities to invest directly in real estate. It can take months to research and purchase properties, and could take a year or more to sell a position.

At TIAA-CREF, the real estate investments are being made through TH Real Estate, which has been managing real estate investments for institutional investors for more than 70 years, and is the world's third-largest real estate investor.

That pedigree, combined with the fact the direct real estate is held in , should minimize the liquidity risk, according to Mr. Rosenbluth.

"For target-date funds, in theory, management should have a good line of sight as to when it has to increase and decrease the real estate exposure," he said. "But that assumes investors are going to hold on for the long term."

0
Comments

What do you think?

View comments

Recommended for you

TD's Vanessa Oligino discusses what is keeping advisers up at night, and something they may not be thinking about, but should.

Video Spotlight

Recommended Video

Channels

Latest news & opinion

Is ESG investing going mainstream?

Despite advisers' misgivings, asset managers are coming around to the idea that a company's stance on environmental, social and governance issues is a good proxy for future success.

Despite January's run-up in stocks, investors headed to bonds

More than $46 billion went to taxable bonds last month, versus $17 billion flowing into stock funds and ETFs.

Alternative funds suddenly look a whole lot better

The market sell-off highlights the virtues of hedging.

Olympics advice from financial advisers who are Olympians themselves

Meet some of the Olympians among U.S. financial advisers, and hear their words of wisdom for those vying for the gold in PyeongChang, South Korea.

Why the new tax law amounts to a 'stealth' tax increase

The government will use an inflation measure that causes things like marginal income tax rates to rise more slowly.

X

Hi! Glad you're here and we hope you like all the great work we do here at arjuna-design. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting arjuna-design.com? It'll help us continue to serve you.

Yes, show me how to whitelist arjuna-design.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Last News

t rowe price 2045 fund vanguard index 500 admiral price safe 401k investments personality test used for hiring caliper employment test social security disability spousal benefits what are social security survivor benefits 1040 turbotax poagx dividend social sercurity.gov vanguard vs fidelity ira rowe 401k conseco life insurance company phone number separate trading of registered interest and principal of securities delaware diversified income fund class a how to buy bonds on scottrade t rowe price large cap growth fund how to calculate social security wages on w2 give examples of a generalist and a specialist pilot life insurance company greensboro nc survivors benefits social security for widows one pershing plaza jersey city nj application to apply for social security benefits income limits with social security benefits ascensus merrill lynch 401k expense ratios for mutual funds what does aon hewitt do virtus real estate securities a ssga international index fund ticker money market fdic rules why invest in international equities hsa contributions tax deductible investment company of america fund cl a best buy john hancock gen x y baby boomers fidelity 401k for small business nick jr shows wiki t rowe price human resources