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Funds Spotlight – Fidelity Real Estate (FRESX)

Real estate funds have been on a downswing since interest rates starting climbing in May and the question going forward is whether rates have peaked or not, and how individual firms react to the shift.

Individual investors looking to invest in REITs have three main avenues: buy individual shares, buy index funds, or buy managed funds. Investors willing to put in the time to research individual companies can probably do the best, but hardly anyone has the time to put into the level of research required to make an informed decision. Investors can buy plain vanilla REIT index funds that deliver broad exposure to the sector. Generally these are low cost, but most of these funds are market capitalization weighted, putting investors in the largest companies without regard for their financial condition. Finally, there is the option of active management, which makes the most sense during periods of adverse operation conditions.

REITs that are strongly managed can adjust to rising interest rates, but firms with a riskier or less well managed financial structure can run into trouble even when the economy is humming. Even if the Federal Reserve wasn't talking about a taper, interest rates are rising in the economy and that will make life more difficult for real estate firms. For investors who want real estate exposure in their portfolio, finding a solid fund is paramount.

FRESX's manager, Steve Buller, has a 15-year track record with the fund and has outperformed the category in every period longer than three months. Those 15 years have seen the tech bubble, housing bubble and subsequent financial crisis, but long-term performance has continued to be solid. FRESX has low expenses compared to competitors and has a manager with a long track record. Those looking for real estate exposure should certainly give FRESX their consideration.

FRESX has earned three stars and a Bronze rating from Morningstar.

FRESX has a Hold rating in the Fidelity Independent Adviser Newsletter and a Power Index Rating of 63. If you would like more information on this unique proprietary rating system we employ in our newsletter, please call us at (800) 548-3797 and we would be happy to speak with you.

Historical Performance (as of 8/14/13)

 

YTD

1 year

3 years*

5 years*

FRESX

3.02

5.59

14.66

6.02

+/- MSCI World

-12.7

-16.58

0.75

1.18

+/- Category (NYSE:SR)

0.51

0.28

1.12

0.87

*3 and 5 Year Returns are annualized. Past performance is no assurance of future results.

Top Ten Holdings (as of 6/30/13)

Top 10 holdings account for 57.2% of assets.

SIMON PPTY GROUP INC - REIT

PUBLIC STORAGE

VENTAS INC REIT

PROLOGIS INC REIT

HOST HOTELS & RESORTS INC

HCP INC REIT

EQUITY RESIDENTIAL REIT

AVALONBAY COMMUNITIES INC REIT

SL GREEN REALTY CORP REIT

KIMCO REALTY CORPORATION

Operations and Expenses

FRESX has an annual holdings turnover of 26%. It has a no load, a short term trading fee of 0.75 percent for shares held less than 90 days and an expense ratio of 0.84%. The minimum initial investment for individuals is $2,500.

Management

FRESX has been managed by Steve Buller since inception 1997. He received his BA from the University of Wisconsin.

Fidelity Independent Adviser's Power Rankings

Power Index: 63

Power Trend: Negative

Recommendation: Hold

(Sources: Morningstar, fidelity.com)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.