From a small northwestern observatory…

Finance and economics generally focused on real estate

ACCRE Report, March, 2022

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For you newcomers to my blog, ACCRE is Greenfield’s in-house REIT fund-of-funds. It’s a carefully curated fund, aiming for a 130-30 long-short strategy (although that’s a tough metric to meet in a generally upward trending market). Before I got bogged down in the winter, I generally reported on ACCRE monthly. I’ll see if I can get back in the swing of things again.

The last few moths have been great for ACCRE, and so-so for real estate in general. We benchmark ACCRE against the S&P500 as well as against S&P’s Global Real Estate Index. The question is how much would your dollar be worth today had you invested in each of these three indices. As you can see below, from the inception (March, 2017) until early 2021, ACCRE generally dominated all three indices. Then the S&P 500 took off on a tear and we’ve worked to keep up. Notably, the broad S&P real estate index has been positive, but with returns considerably lower than ACCRE. Why? Novice real estate investors often fail to appreciate the fact that different real estate sectors behave differently. The pandemic, for example, led to terrible returns in some areas (hospitality or campus housing, for example) but great returns in others (single family housing, data centers). As such, ACCRE has nearly erased about a year and a half of S&P advantage, and continued to outperform the broader real estate index.

We also track the SHARPE index for ACCRE and the S&P as well as the correlation coefficients between the two. The former gives a good measure of how much return an investor gets for a certain level of risk (measured as standard deviation of daily returns). The latter gives evidence of how a well constructed REIT portfolio can help attenuate risk by diversifying the overall investment portfolio.

S&P 500
Average Daily Excess Return0.0476%
Standard Deviation1.2424%
Sharpe Ratio3.8313%
Average Daily Excess Return0.0461%
Standard Deviation1.1724%
Sharpe Ratio3.9313%
Correlation Coefficient (life of the fund)48.5164%
Correlation Coefficient (month of March)11.6763%

Even though the S&P has enjoyed slightly higher returns over the life of the fund, the lower volatility in ACCRE makes it a more attractive investment on a risk-adjusted basis. Further, ACCRE has only been about 48% correlated with the broader market over the past 5 years, and almost totally uncorrelated this past month, boding well for portfolio diversification.

As always, if you have any questions about ACCRE, about REIT investing, or real estate in general, please drop me a note. I’d enjoy hearing from you!

John A. Kilpatrick, Ph.D., MAI —

Written by johnkilpatrick

April 1, 2022 at 9:59 am

Posted in Uncategorized

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