S&P Expects 'Market Performance' from Realty Funds

Standard & Poor's is expecting a "market performance" year from real estate mutual funds in 2004, after the group turned in a 36.6% return for 2003.

The financial information services company also expects real estate investment trusts, in which real estate mutual funds generally invest, to turn in a 11% return for 2004.

According to Standard & Poor's, real estate funds became popular during the bear market and "stayed in fashion" last year as other funds recovered.

But looking ahead, S&P expects that the REIT sector will provide 2004 results that are "decent," but less rewarding than year ago results.

For the five years ended December 2003, real estate mutual funds turned in 14.20% on average vs. 3% for domestic stock funds, S&P reports. During the same period, the S&P 500 index returned a negative 4.10%.

Raymond Mathis, a Standard & Poor's REIT equity analyst, said, "I'm looking for market performance this year. When the tech bubble burst in 2000, investors were attracted to dividends on REITs. At the same time, people who had been enamored of Internet stocks began focusing on companies with 'hard assets' that offered stability. REITs fit that bill because they typically have substantially positive net asset value."

Even after the stock market started to rebound last year, money continued to come into real estate mutual funds because by then investors had realized that REITs could serve to diversify their portfolios.

Mr. Mathis noted, "Increasingly, companies that previously had no real estate investment options available in their pension plans have been adding them in response to investor demand."

The National Association of Real Estate Investment Trusts is also actively trying to promote the inclusion of REIT choices in retirement accounts.

Jay Hyde, a NAREIT spokesman, told MSN that only 12% of U.S. retirement plans offer a REIT option at this time. And one of the goals for the REIT industry trade association this year is to see that more retirement accounts offer a REIT option.

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