Real Estate Funds Have Rough Quarter

Real Estate Bloggers noted that funds run by Fidelity Investments, Franklin Resources and Kensington Investment Group all had rough second quarters. The combination of home builders taking a beating, subprime problems and the recent REIT stock decline was a triple whammy.

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.

More at Bloomberg.

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