Persistent Performance Among Core Open End Funds
||Ryan, Stephen; Arvydas Jadevicius, Henri Vuong, Matthias Thomas
||Persistent Performance Among Core Open End Funds
||23rd Annual European Real Estate Society Conference in Regensburg, Germany
||Despite the familiar caveat that past performance is no guarantee of future performance, it is possible that persistent performance in non-listed real estate is real and significant, and therefore should not be ignored. In this analysis we look at past performance of non-listed real estate funds from three angles:(a) Comparison of historic performance against a random distribution: The performance of funds is ranked by either quartile or half, and tracked over time to assess whether funds can retain their initial rank. The number of funds remaining within their original half or quartile grouping is compared with a random expectation, and any deviations from randomness imply that performance persistence may exist;(b) Duration of performance: We estimate the maximum amount of time a fund stays in a particular grouping. By focusing on top and bottom funds, we are able to make comparisons against expected duration and draw conclusions about the sustainability of performance. (c) Pathway analysis: As and when funds move from one grouping to another, we analyse whether certain routes taken are more common. Pathway analysis is of interest because the impact of relatively stable routes (such as moving from the second quartile to the first and then back to the second) is clearly less than the impact of more radical routes (such as moving from the first quartile to the fourth and staying there). For data we use core open end funds in the INREV Annual Index universe. The number of such funds has grown from 17 in 2001 to 133 in 2014; correspondingly, aggregated GAV has increased from €7.8 billion to €101.8 billion. Over this period 162 funds in total have been in and out of the universe.One of several results emerging from the study is evidence that sticking to an originally top quartile performing fund for a prolonged period of time can result in sub - par returns. Top quartile performance rarely endures, and once top quartile ranking is lost it is very rarely recovered quickly. It may be better to focus on funds that are solid top half performers. This and other results from the study may be helpful in manager selection and in shaping expectations regarding future performance.
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||Real Estate Investment
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