If you want to know what to do with your investments, watch what the superrich are doing, and follow along.
According to an Aug. 5 article from Barron’s, the 750 members of Tiger 21, a peer-to-peer learning network whose members are said to be worth $75 billion, are moving away from equities to cash and real estate investments.
Barron’s article suggested that the group had more cash in their combined portfolios at the end of the first quarter than they’ve had since 2013. At the end of the second quarter, the level of cash was in double digits at 12%.
While the superrich continue to hold large amounts of cash, it’s important to note that they’re also increasing their positions in real estate. With stocks in a 10-year bull market and priced to perfection, the wealthy worry that the economic inequality in America is leading to an adverse outcome.
To protect against the ongoing polarization of America, the wealthy are moving their assets into real estate investments and moving away from public and private equities.
If you want to mimic what the superrich are doing, here are 10 real estate investments to hold for an uncertain future.
Real Estate Investments to Buy: Cohen & Steers Total Return Realty Fund (RFI)
The Cohen & Steers Total Return Realty Fund (NYSE:RFI) is a closed-end fund that was launched in September 1993. Its objective is to achieve a high total return by investing in real estate securities including common stocks, preferred shares, REITs, and REIT-like entities.
As of the end of June, it had net assets of $355.3 million, traded at a 3.8% premium to its net asset value, had 114 holdings, and invested 44% of its net assets in its top 10 holdings.
Over the past 10 years, it’s achieved an annualized total return of 16.6%, 190 basis points higher than the S&P 500.
DFA Real Estate Securities Portfolio (DFREX)
The next two real estate investments are mutual funds.
The DFA Real Estate Securities Portfolio (MUTF:DFREX) is an institutional class mutual fund that must be purchased through a Dimension Fund Advisors financial professional. I included it in my group of 10 investments because in my past life writing about the financial advisor community, I found DFA to be an excellent company providing good advice for its clients.
I’m not suggesting you should get a financial advisor, but if you do, DFA would be an excellent place to start.
As for the fund itself, it has $9.9 billion in total net assets invested in a total of 157 real estate investments, 32% of which are specialized REITs, another 16% are residential REITs, and 14% are invested in retail REITs. Its top 10 holdings account for 41% of the mutual fund’s net assets.
The average stock in the portfolio has a weighted average market cap of $27.8 billion with a price-to-book of 2.8. It got its start in January 1993. Over the past 10 years, it has had just one year of negative calendar year returns. That was in 2018 when it lost 3% of its value. However, it managed to deliver double-digit gains in four of those years.
Charging 0.18% plus whatever your financial advisor charges, it’s an excellent way to play the real estate markets while getting professional investment advice.
Fidelity Real Estate Investment Portfolio (FRESX)
The Fidelity Real Estate Investment Portfolio (MUTF:FRESX) has been in existence since November 1986. Over the past 10 years through July 31, it has delivered an average annual return of 15.41%. Year to date it’s up 19.81%.
As of the end of June, FRESX had $4.3 billion in total net assets invested in a total of 48 stocks with the top five holdings accounting for 31% of the portfolio, 98% of which is invested in U.S. real estate companies. Office & industrial, residential, and healthcare real estate account for 75% of the portfolio.
The primary portfolio manager on the fund is Steve Buller, who has been managing it since October 1998. He turns the portfolio 15% annually, which means the entire portfolio changes approximately once every six-and-half years.
Over the past decade, out of 137 funds in its category, FRESX has been ranked in the top 7%, which helps justify its annual expense ratio of 0.76%.
Schwab US REIT ETF (SCHH)
One of the key features of many ETFs is that they come with reasonable fees. The Schwab US REIT ETF (NYSEARCA:SCHH) is no exception. It charges the bargain-basement rate of 0.07% annually.
The ETF tracks the performance of the Dow Jones US Select REIT Index, a passive index of U.S. real estate investments. The ETF got its start in January 2011. It has $5.7 billion in total net assets with the top 10 holdings accounting for 46% of the portfolio. The other 98 holdings accounting for the rest.
Like many of the ETFs, mutual funds, and closed-end funds on this list, the top three holdings are Prologis (NYSE:PLD), Simon Property Group (NYSE:SPG), and Public Storage (NYSE:PSA). I discuss two of these stocks below.
If you want cheap and good at the same time, SCHH stock is the way to go.
iShares Global REIT ETF (REET)
By paying a reasonable 0.14% annually, REET gives you 65% U.S. real estate exposure along with 35% international exposure with Japan, Australia, United Kingdom, and Canada accounting for 22% of the fund’s $1.7 billion in total net assets.
The ETF tracks the performance of the FTSE EPRA Nareit Global REITS Net Total Return Index. The fund itself has a total of 300 holdings with the top 10 accounting for 25% of the total portfolio.
The most significant holding outside the U.S. — nine of the top 10 are U.S. real estate companies — is the Link Real Estate Investment Trust, which trades on the Hong Kong Stock Exchange, and is the largest publicly traded REIT in Asia.
In business since July 2014, REET’s delivered an annualized total return of 6.2% over the past five years, considerably less most U.S. real estate ETFs, but reasonable given its international exposure.
Consider this ETF if you want a hedge against a U.S. recession.
Vanguard Real Estate REIT (VNQ)
In real estate, you have the Vanguard Real Estate ETF (NYSEARCA:VNQ), an ETF with $34.7 billion in total net assets invested in 189 U.S. real estate stocks with the top 10 holdings accounting for 42% of the portfolio.
A $10,000 investment in VNQ a decade ago is worth approximately $38,650 today. In business since September 2004, the ETF’s averaged a total return of 8.86% since its inception.
As passive real estate ETFs go, it’s got a relatively high turnover rate of 24%. That said, it charges just 0.12% for its management expense ratio, which makes VNQ another low-cost option to gain exposure to the U.S. real estate market.
Brookfield Asset Management (BAM)
Brookfield made the news this past year when it acquired Kushner Cos. 99-year lease on 666 Fifth Ave., an office building in New York that Jared Kushner’s family bought at the height of the real estate market in 2006, using a whole lot of debt, getting themselves overextended in the process.
Brookfield intends to renovate the building and add some retail to the mix to make it a more attractive real estate asset. If there’s one thing about Brookfield, it’s that it knows how to add value to the assets it buys. It’s as patient an investor as you will find.
As long as CEO Bruce Flatt is running the company, I continue to believe it is the best alternative asset manager in North America, if not the world.
Simon Property Group (SPG)
Retail Dive, which covers the retail industry, recently published an article entitled Is Real Estate Poised to Save Retail? It was a deep dive into the plans of Simon Property Group (NYSE:SPG) and its malls.
The retail apocalypse continues to be discussed by media pundits as if Simon’s future is very much in doubt. This couldn’t be farther from the truth. Simon is alive and well and continuing to grow.
Three years ago, Simon, along with its largest rival, Greatland Gold (GGP), which coincidentally is owned by Brookfield, rescued teen/tween retailer Aeropostale from certain death. That led to speculation that it would do more deals like Aeropostale.
However, it’s only going to buy another retailer if it feels that retailer brings a sufficient amount of brand value to the equation along with enough volume that it’s worth it for Simon to backstop a turnaround.
Detractors view this as an act of desperation. I see it as smart business. If you have a retailer with 10 leases, you let it die. If you have a retailer with 100 leases, you try to bring it back to health.
It’s like the old saying about bankers from J. Paul Getty: “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”
Simon continues to reformat its malls to be more experiential and less product-driven. In 10 years, you won’t be able to recognize its malls.
Public Storage (PSA)
With all the recession talk recently, you couldn’t find a better real estate investment than the self-storage business. They’re virtually recession-proof. That’s why Public Storage (NYSE:PSA), the largest storage company in the U.S., continues to be a smart place to put your money.
I like the self-storage business because except for the cost of the real estate and build-out of the storage facility, they’re relatively inexpensive to maintain, making it a great way to invest in real estate over the long haul.
“We joke how [tenant improvement allowance] is only $3 with self-storage: Grab a broom, sweep and then you lease it back up,” said JLL Managing Director Steve Mellon recently.
In the most recent quarter ended June 30, Public Storage generated core funds from operations (CFFO) of $2.64, 2.7% higher than a year earlier. Yielding 3.1%, you get paid to wait for some of its locations’ real estate to grow exponentially to the point where it makes sense to sell the property.
This is a buy-and-hold real estate investment if there ever was one.
My InvestorPlace colleague Josh Enomoto recently picked Ventas (NYSE:VTR), one of the largest owners of seniors housing and other medical-related real estate, as a services stock worth owning for the rest of 2019 and beyond.
Josh mentioned a staggering statistic: 10,000 Americans are turning 65 every day. Those people are eventually going to require a place to live where medical care and assisted living is part of the equation. Until then, they’re going to be visited medical facilities more often to treat the natural side effects of aging.
I have liked the stock and its CEO, Debra Cafaro, for some time. It’s nice to see Ventas stock making some progress after a couple of years in reverse. Up 24% year to date through Aug. 7, including dividends, it looks as though the headwinds facing the REIT as it repositioned its portfolio, are a thing of the past.
Yielding 4.4%, it’s not the highest-paying REIT, but it provides you with access to the kind of real estate properties that are going to benefit from the aging of America.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.