Real estate funds run by Fidelity Investments, Kensington Investment Group, and Franklin Resources all announced that they had taken significant losses in their real estate funds the past quarter. All 3 if the funds lost over 16 percent of their net worth during the second quarter. The combination of homebuilder stock declines, subprime loan losses, and REITs declining by an average of 19 percent contributed to the losses.
Last year these funds were some of the top producers on Wall Street. This year they are the dogs. It is amazing how quickly markets turn.
Property funds, the best performers in 2006, slumped 16 percent since May 14, the most of any category tracked by research firm Morningstar Inc. in Chicago. The $5.9 billion Fidelity Real Estate Investment Portfolio, the largest among the group, fell 19.7 percent. The $718 million Franklin Real Estate Securities Fund and the $500 million Kensington Strategic Realty Fund each dropped 20.3 percent, the most among actively managed property funds with more than $100 million in assets.
House prices will suffer their first annual decline since the 1930s as rising mortgage rates hurt demand, according to the National Association of Realtors in Chicago. Investors pulled $4.5 billion from real estate funds in the past three months after a drop in commercial property shares slashed returns.
“Even though the subprime crisis is mainly hitting residential real estate, commercial is getting pretty hard hit on lower expectations for U.S. growth,” said Brad Durham, managing director of Emerging Portfolio Fund Research. Bloomberg.com