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The Journal of Portfolio Management

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Are All Open-End Core Funds Created Equal?

Simon Fairchild, Greg MacKinnon and John Rodrigues
The Journal of Portfolio Management Special Real Estate Issue 2011, 37 (5) 51-67; DOI: https://doi.org/10.3905/jpm.2011.37.5.051
Simon Fairchild
is a managing director of IPD North America in Chicago, IL.
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  • For correspondence: simon.fairchild@ipd.com
Greg MacKinnon
is the director of research at Pension Real Estate Association in Hartford, CT.
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  • For correspondence: greg@prea.org
John Rodrigues
is the product development manager at IPD North America in Chicago, IL.
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  • For correspondence: john.rodrigues@ipd.com
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Abstract

Open-end core real estate funds (OECFs) are an important component of the institutional property markets, but have received scant attention in the research literature. Fairchild, MacKinnon, and Rodrigues examine a sample of OECFs to determine if their underlying portfolios are consistent with common definitions of “core” and to what extent core funds provide beta exposure to the market. Generally, OECFs appear to hold core-type portfolios, but this is not universal. In particular, smaller funds tend to be less diversified and have higher idiosyncratic volatility. Many OECFs have a surprisingly large exposure to development projects. The authors find that leverage also plays a key role in an analysis of OECFs. While most OECF returns are driven by the broad market, OECFs are usually an aggressive play on the market, with each fund’s aggressiveness determined by its leverage. Further, although the authors find evidence of persistence in OECF returns, a closer look reveals that this may be due to funds varying their capital structure over time. Overall, while most OECFs appear driven by similar factors, not all are created equal; investors should conduct careful due diligence on their OECF investments, with special attention to fund size and leverage.

TOPICS: Real estate, equity portfolio management, mutual fund performance

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The Journal of Portfolio Management: 37 (5)
The Journal of Portfolio Management
Vol. 37, Issue 5
Special Real Estate Issue 2011
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Are All Open-End Core Funds Created Equal?
Simon Fairchild, Greg MacKinnon, John Rodrigues
The Journal of Portfolio Management Sep 2011, 37 (5) 51-67; DOI: 10.3905/jpm.2011.37.5.051

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Are All Open-End Core Funds Created Equal?
Simon Fairchild, Greg MacKinnon, John Rodrigues
The Journal of Portfolio Management Sep 2011, 37 (5) 51-67; DOI: 10.3905/jpm.2011.37.5.051
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  • Article
    • Abstract
    • FIRST STEPS: WHAT IS CORE?
    • DATA
    • OPEN-END CORE FUNDS: WHAT DO THE UNDERLYING PORTFOLIOS LOOK LIKE?
    • DIFFERENCES IN FUND-LEVEL RISK AMONG OECFs
    • RETURN PERSISTENCE
    • CONCLUSION
    • ENDNOTES
    • REFERENCES
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