Fisher Investments on Financials

CHAPTER 5

REAL ESTATE INDUSTRY GROUP

When people think about real estate, most may think first of residential real estate—whether a single-family home in the suburbs or a condo by the beach. This category includes one- to four-unit properties, and while the sheer size and breadth of the market make pinpointing the true value difficult, it’s safe to say it’s one of the largest markets in the world.

When it comes to equity investing, real estate typically refers to commercial property designed for retail, wholesale, office, hotel or service use, which globally accounts for more than $21 trillion in assets.1 It also refers to residential real estate in excess of four units, such as apartment buildings or senior living facilities. Companies focused on commercial properties are in the Real Estate Industry group.

The Real Estate Industry group is the smallest in the Financials sector in most major indexes, with one exception—US small-cap benchmarks. The group consists of Real Estate Investment Trusts (REITs) and Real Estate Management & Development (REMD) companies, both of which concern owning, managing, financing and/or developing mostly commercial real estate assets. It represents 2.6% of the MSCI World index, with most REIT exposure in the US, while most Management & Development companies are outside the US (Table 5.1).2

Table 5.1 Real Estate Industry Group Weight in Major Benchmarks

Source: Thomson Reuters; S&P 500 and Russell 2000 Indexes; MSCI, Inc.3 As of 12/31/2011.

Since REITs ...