From a small northwestern observatory…

Finance and economics generally focused on real estate

ACCRE LLC, August, 2020

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A well curated real estate fund should enjoy both above-average returns AND some attenuation of the risk in a securities portfolio. As noted a couple of weeks ago, ACCRE has about a 56% correlation with the S&P, which means that when the rest of the market is charging ahead, we’re tagging along, albeit at a slower pace. However, when the rest of the market falls out of bed, we don’t do so badly.

Case in point was the month of August, contrasted with the first few days of September. August was a gang-busters month for the S&P, and real estate in general did OK as well. ACCRE overall returns continue to be well above the S&P, but it is a horse race! A dollar invested in ACCRE at the inception (April 1, 2017) would be worth $1.73 on August 31, compared to that same dollar in the S&P only worth $1.48. Of course, the overall S&P Real Estate index fell apart after the onset of the recession, and is only partially back in the black today.

All that said, as every investor knows, this week has been painful for the broader market, with the S&P down about 4% since Wednesday’s close (as of this writing, mid-day Friday). ACCRE is also down, but only by about half as much. We’re still fully invested, but of course watching our positions carefully.

I would note that our strategy has been selective both on a macro and micro level. We’re looking for real estate sectors which we believe will do well in this economy, then within those sectors, we look for both the best and worst players. Yes, this is a fundamentalist strategy, but we also pay close attention to what the market is telling us. After all, REITs tend to be a sophisticated investment, and we gain a lot of insight by seeing how other investors interpret the tea leaves.

Best wishes to you all! As always, if you have any questions on real estate finance, economics, valuation, and such, please do not hesitate to drop me a line.

John A. Kilpatrick, Ph.D., MAI —

Written by johnkilpatrick

September 4, 2020 at 11:16 am

Posted in Uncategorized

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