Cohen & Steers, which has been managing real estate
investment trusts since REITs were first created in the 1980s,
is beating index fund rivals as many have been hard hit by
problems in the retail sector.
With active stock managers under continued pressure from
low-cost index funds, niche firms such as Cohen & Steers
have used specialized expertise and fundamental research in
sectors like real estate and energy to outperform benchmarks.
Although Cohen & Steers Realty Shares has seen losses this
year, its benchmark fared worse. And its outperforming
with high single-digit gains over the past three years.
Realty Shares, Cohen & Steers flagship fund, lost
3 percent in the 12 months through July, according to
Morningstar and FactSet. The funds benchmark, the FTSE NAREIT Equity REITS Index, lost 4.5
percent over the same period. Over the past three years, Realty
Shares gained 9.1 percent annually even after investors paid
fees, compared to the indexs gain of 8.8 percent and 7.7
percent returned by peers.
Joe Harvey, president and chief investment officer of Cohen & Steers, says the fund
outperformed its benchmarks because its managers began
lightening up on the funds exposure to retail about a
year ago, something index funds, by definition, cant do.
In the fairly slow-moving real estate sector, managers can cut
back on companies that will be hurt by big trends, such as the
shift by consumers away from shopping in stores to buying
A year ago, Cohen & Steers U.S. team studied big
retailers, many of whom are anchor tenants of malls, and the
challenges posed by online shopping.
We did research on the retailers, not on real estate
per se, said Harvey. The conclusion was that the
clock was ticking on the financial viability of many of the
large tenants in regional malls. Thats what gave our
managers the conviction to get underweight.
[II Deep Dive: More Active Managers Are Beating Passive
Harvey, who joined Cohen & Steers as a REIT analyst in
1992, says the firms approach to beating peers and
benchmarks has changed over time. Twenty years ago, when the
publicly traded real estate sector was still new with fewer
competitors, he says that Cohen & Steers could get a bigger
information advantage on a companys prospects with
fundamental research than it can today.
At that time, just by virtue of going out and visiting
a company, you would learn things that were very
investable, said Harvey. Weve had to up our
Cohen & Steers now integrates risk-management techniques
into its investment process, so it can confidently buy
undervalued securities during market downturns, and it has
built up macroeconomic research capabilities.
The market has become much more macro where factors
like momentum or value have come to dominate the markets for
periods of time, he said. We need to know what we
might be vulnerable to.
With pressures on all active managers, Cohen & Steers
has also established goals and measurement techniques to make
sure it is expressing conviction in its
Increasingly, investors want their funds to have higher
conviction, which is often measured by active share, or the
percentage of a funds holdings that differs from the
index. If investors are going to pay higher fees for an
actively managed fund, they want to make sure it looks a lot
different from cheaper index funds.
Active share for Cohen & Steers Realty Shares fund
was 33.4 percent in 2012, rising to 48.7 percent on March
Higher active share is something that by definition an
index fund cant provide, Harvey said.