Many people already invest in real estate through owning a home. Investing in a real estate fund however can bring numerous benefits to your portfolio.
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Reasons to invest
A real estate fund might includes residential or commercial properties such as offices or industrial assets and aims to provide:
an income from rent on the properties
capital appreciation from rising markets or improvements to properties
at least partial protection against inflation through rents, which are traditionally indexed against the Consumer Price Index (“CPI”) meaning as it rises, so do they
an alternative to traditional fixed income such as bonds
diversification benefits (they have a low correlation to equities and bonds)
Lastly, they provide diversified exposure to the world’s largest asset class.
How does inflation affect income from real estate?
Real estate is one of the few asset classes investors consider a good inflation hedge. The rental income generated by a real estate asset varies due to a number of factors, for example supply and demand or improvements made to the property. However, crucially in times of rising inflation, rents are generally tied to the Consumer Price Index (CPI) and rise with it. Over the long term, this mitigates the impact of inflation on returns. For example, if CPI increases by 3%, a fully CPI-indexed yearly rent of 100 would increase to 103. Assuming that all else remains equal, then the impact is demonstrated as follows:
Reaching for higher ground - inflation and real estate returns
[For illustrative purposes only]
This objective is based on the hypothetical gross returns achieved by a generic value-add real estate investment strategy. This target return does not in any way constitute a promise of future returns and is for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. All forms of investment involve risk. The value of investments and the income derived from them is not guaranteed and it can fall as well as rise and you may not get back the original amount invested. Performance figures are quoted gross of management fees and recurring costs.
How correlated is real estate to other asset types?
As you can see from the chart below, real estate tends to have a low correlation to other major asset types such as equities and bonds.
Five year correlation of real estate to traditional asset classes
Source: Pictet Asset Management, as at 30.06.2022; Real Estate: NCREIF Property Index; Global Equity: MSCI World; EM Equities: MSCI EM; Govt Bonds: FTSE WGBI; Corp Bonds: Barclays Glb Agg Corp TR; REITS: FTSE NAREIT All Equity REITS TR. REITS = Real Estate Investment Trusts. Please note that past performance is no guarantee of future performance.
Explainer – different investing approaches
We offer two investment approaches. Each strategy has a different risk/return profile and strengths and weaknesses in different economic environments.
Core Plus aims to generate an immediate stable income from quality tenants. The assets are managed over long periods of time and generally only require small enhancements, refurbishment or development to increase their net operating income.
Value-add invests in properties that require management and/or structural improvements, may exhibit operational challenges or suffer from capital constraints. The purpose is to "buy low and sell high" following a repositioning or redevelopment.
A word on... liquidity
Real estate funds invest in property, which can take time to sell. The
investment managers also need time to develop properties to create the value
and returns investors require. This can lead to a mismatch between investors
(who tend to want shorter-term liquidity) and the longer-term nature of the
asset class. For this reason we carefully manage
the liquidity of our portfolios. We utilise lock-up periods on our funds and
use special investment vehicles like the well-regulated ELTIF (European
Long-Term Investment Fund), which has been specifically designed to protect
investors who put money into companies and projects which need longer-term
capital.
This marketing material is issued by Pictet Asset Management (Europe) S.A.. It is neither directed to, nor intended for distribution or use by, any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. The latest version of the fund‘s prospectus, Pre-Contractual Template (PCT) when applicable, Key Information Document (KID), annual and semi-annual reports must be read before investing. They are available free of charge in English on www.assetmanagement.pictet or in paper copy at Pictet Asset Management (Europe) S.A., 6B, rue du Fort Niedergruenewald, L-2226 Luxembourg, or at the office of the fund local agent, distributor or centralizing agent if any.
The KID is also available in the local language of each country where the compartment is registered. The prospectus, the PCT when applicable, and the annual and semi-annual reports may also be available in other languages, please refer to the website for other available languages. Only the latest version of these documents may be relied upon as the basis for investment decisions.
The summary of investor rights (in English and in the different languages of our website) is available here and at www.assetmanagement.pictet under the heading "Resources", at the bottom of the page.
The list of countries where the fund is registered can be obtained at all times from Pictet Asset Management (Europe) S.A., which may decide to terminate the arrangements made for the marketing of the fund or compartments of the fund in any given country.
The information and data presented in this document are not to be considered as an offer or solicitation to buy, sell or subscribe to any securities or financial instruments or services.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. The management company has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional.
The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested.
The investment guidelines are internal guidelines which are subject to change at any time and without any notice within the limits of the fund's prospectus.
The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a specific security is not a recommendation to buy or sell that security. Effective allocations are subject to change and may have changed since the date of the marketing material.
Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares.
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