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Real estate funds still holding their own

Real estate funds have been one of this year's few bright performance spots. While the investment objective and portfolio holdings of each may differ, here's one that's designed for income then growth.

The Alpine Income & Growth fund, (888-785-5578), has been around since late 1998 and over the past few years has racked up some impressive total returns. At year-end 1999, for instance, the fund's total return was a positive 4.6 percent; at year-end 2000, it was up 32 percent; and one year later, at year-end 2001, the fund was up 12.6 percent. And, year-to date numbers through August 23 this year, show the fund was up 14.81 percent, according to Morningstar.

Those numbers are worth noting given that the average real estate mutual fund was up 5.68 percent, through August 22, according to Lipper. As a result, the Alpine Growth & Income fund (AIGYX) was ranked No.1 by Lipper because of its performance over the past three years, Aug. 12, 1999 through Aug. 15, 2002.

Bob Gadsden is the fund's portfolio manager. With a small-cap value bent, he says one of the reasons for the fund's success is that it's still a small fund. " With about $35 million in assets, it enables us to maintain a fairly large universe of holdings and it gives us flexibility."

Here's more from Gadsden about the Alpine Income & Growth fund:

Q: What's the gist of this fund?

Gadsden: It's a specialty sector fund and the focus of it is predominately on income. We like to buy real estate at a discount to its underlying property value and the fund invests primarily in real estate investment trusts, (REITs) and some preferred shares.

Q: Why has the fund has performed so well?

Gadsden: With 73 names in the fund, we're not placing any big bets on any single company. Over the past 12 months in particular, we've placed bets on companies within the real estate group that we thought were most likely to take advantage of the shape of the yield curve and the low borrowing rates. Those kinds of investments have included mortgage companies.

We've also benefited from targeted companies where the consumer will benefit the company more than let's say business growth or employment growth. So under that category, we've had some investments in home builders. Retail companies, those that specialize in building, owning and managing space leased to retailers, have also been a focus of our fund.

Q: Can you give me an idea of some of the retail mall holdings?

Gadsden: In our top 10 holdings are regional malls like Simon Property Group and Chelsea Property Group. They, (Chelsea) are the dominate owner of high quality outlet malls.

Q: What sets this fund apart from the other real estate funds?

Gadsden: We're flexible and not wed to modeling after an index fund per se. We look for opportunities and at the less expensive stocks. stocks where there is a greater discount to the underlying value and stocks we think are not fully appreciated by the street. That's where we try to position ourselves.

This fund is also different in that we have a higher weighting on retail than some other funds do, we have a lower weighting on office and a much lower weighting on apartments because apartments have actually been hurt by the fact that you can buy a home because of cheap financing.

So I think that we're more flexible and try and adapt to the market. And we take a top down approach first then look at the individual companies.

Q: What's something you think investors don't understand about real estate funds?

Gadsden: I think most people think that all types of real estate investments move in lock-step. That all types of property, commercial, retail, etc., acts the same and if something is going badly in one area that means it's all going badly. And, if one is going great guns they all are and it doesn't work that way. In fact, you can see differences just regionally. You can see parts of the country where to be owning apartments isn't working out at all and in other parts of the country where apartments are the greatest investment.

Q: Any suggestions on how much of one's assets they ought to have invested in real estate funds?

Gadsden: Depending upon needs, somewhere between five to 20 percent.


Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.

To read more articles, please visit the column archive.

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