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What are we looking for?

Canadian-domiciled real estate funds that have outperformed peers.

The screen

Investment in residential real estate has long been thought of as a hedge against inflation. However, perceived market bubbles in Canada’s largest cities have made investors second-guess this approach, especially amid a pandemic that has coerced many city dwellers to seek larger spaces farther away from downtown cores. Recall though, that investment in real estate need not be limited to a hefty investment in a rental property of your own.

With this in mind, today we explore real estate equity funds that largely invest in diversified portfolios of real estate investment trusts (REITs). I used Morningstar Direct to first look at the 38 real estate equity mutual funds and exchange-traded funds (counting only the oldest share class of each) domiciled in Canada, then screened for funds with a Morningstar Rating for Funds (also known as the star rating) of four stars or better. Recall that the star rating is a measure of trailing risk-adjusted return after fees compared against funds in the same category. Though the star rating is backward-looking, we’ve found that it has some staying power in that five-star funds as a group tend to outperform four-star funds, which outperform three-star funds, etc. – after receiving the rating. Though the rating in no way predicts future performance, it is an excellent starting point for further research.

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What we found

The real estate equity funds that met the above requirement are listed in the table, along with management expense ratios (MERs), trailing performance after fees and the trailing 12-month yield. It is calculated as the amount paid out in pretax distributions by the investment in the past 12 months expressed as a percentage of the previous month-end price, excluding return on capital distributions.

An added layer of transparency is displayed in the table, showing the exposure to the different REIT subindustries as defined by Morningstar.

For comparative purposes, only fee-based share classes of mutual funds are displayed. These funds are available through a fee-based account with an adviser, who will charge an overall management fee separate from the MERs listed here. Of the investments on the table, the iShares Global Real Estate ETF (CGR) is the only one that is passively managed.

This article does not constitute financial advice. It is always recommended to speak to a financial adviser or professional before investing in any of the vehicles listed here.

Top-performing funds that invest in REIT portfolios

FundAnnual Report MER (%)Morningstar Rating Overall12M Yld. (%)YTD Ttl. Rtn. (%)1Y Ttl. Rtn. (%)3Y Ann. Ttl. Rtn. (%)5Y Ann. Ttl. Rtn. (%)10Y Ann. Ttl. Rtn. (%)Industrial (%)Residential (%)Specialty (%)Retail (%) Diversified (%) Office (%) Health care (%) Hotel & Motel (%) Holdings as of:
First Asset REIT Income F Ccy Hdg1.335 Stars4.1-4.2-4.96.79.112.522.934.33.710.87.45.31.10.010/31/2020
Ninepoint Global Real Estate F1.675 Stars4.51.3-0.25.58.4n/a26.66.120.03.08.85.80.00.010/31/2020
Dynamic Global Real Estate Series F1.205 Stars2.7-1.0-1.66.66.89.321.925.66.72.58.310.52.10.08/31/2020
CI First Asset Canadian REIT ETF (RIT)0.874 Stars5.4-6.4-7.56.59.410.321.030.31.513.07.85.51.20.010/31/2020
Middlefield Real Estate Class F1.154 Stars4.8-2.5-3.07.66.6n/a25.814.210.49.00.55.16.50.010/31/2020
Signature Global REIT Class F1.224 Stars0.0-3.2-3.96.16.0n/a20.328.08.92.41.99.52.80.010/31/2020
Fidelity Global Real Estate Series F1.194 Stars2.2-5.7-5.55.14.89.220.719.45.34.97.111.26.40.49/30/2020
DFA Global Real Estate Securities Cl F0.374 Stars3.4-8.8-9.44.04.79.917.611.219.512.615.114.06.32.08/31/2020
iShares Global Real Estate ETF (CGR)0.714 Stars2.3-6.4-6.63.03.68.414.113.710.613.05.414.75.31.011/16/2020

Morningstar Direct

Ian Tam, CFA, is director of investment research for Morningstar Canada.

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