Active Management in Real Estate Mutual Funds

This paper examines active management in real estate mutual funds (REMFs). The REMF industry has expanded as the underlying REIT industry has developed over time, but the number of REMFs experienced a sharp decline following the global financial crisis. The likelihood of termination is greater for smaller funds and funds with higher expense ratios. Using various measures of active management (Fund R-2, Active Share, Property-Type Concentration Index, and Return Gap), we observe that real estate fund managers have become less active over time. In contrast to the findings for more broadly diversified equity funds, these activeness measures do not explain the future performance of REMFs. To the extent that geographic diversification measures activeness, we find no evidence that the performance of REMFs holding geographically diversified portfolios differs from the performance of REMFs with concentrated portfolios. Overall, our findings shed light on the uniqueness of REMFs relative to diversified equity mutual funds.