- Bluerock’s Total Income + Real Estate Fund has delivered strong risk-adjusted returns over the past decade.
- Rising inflation has led investors to seek out real assets, which historically provide strong hedges.
- A strategist shares three key real estate sub-sectors to invest in as inflation rises.
Investors looking for eye-popping gains in speculative stocks and cryptocurrencies were likely disappointed in 2022 as risky assets continued to sell off.
Perhaps they’d be better off looking for solid, steady gains like the ones the Bluerock Total Income + Real Estate Fund has consistently produced over the past decade.
The fund is up 10% this year – on track to top its lifetime average annual gain of 9% – while the S&P 500 is down nearly 13% year-to-date.
The publicly traded interval fund has closed in the green every year since its inception in 2012 and – surprisingly – has posted just three losing quarters in that period, out of a possible 37. It earned annual returns of 1.4% to 21.6% and returned less than 6% in a year just once, according to Morningstar.
What’s even more impressive than these returns is that the Bluerock Capital Markets team managing the fund managed to achieve these goals without taking excessive risks.
An analysis of the Bluerock fund and 6,138 competing open funds, closed-end funds, and exchange-traded funds conducted by Bluerock using data from Morningstar Direct (which Insider then reviewed) found that the Bluerock fund had the Sharpe and Highest Sortino – two metrics designed to measure risk-adjusted returns – since trading began on October 22, 2012.
Miguel Sosa, a research strategist at Bluerock who works on the investment product, gave Insider insight into how the Bluerock Total Income + Real Estate Fund fared.
“The natural question we get is: how did you deliver those feedbacks?” Sosa told Insider in a recent interview. “Very briefly for you, those are three fundamental pillars.”
Sosa said those pillars are private real estate, the asset class the fund invests in and which Sosa described as “very stable” and “very growth oriented”; the sub-advisors with whom the company partners to develop its strategies; and carefully constructed active asset management.
High Inflation Means High Real Estate Returns
Although retail investors cannot easily access the private real estate markets and institutional funds that Bluerock can, Sosa said there are still ways to gain exposure to the three real estate sub-sectors that make up substantial parts of the Bluerock Total Income + Real Estate Fund. .
Sosa said he thinks real estate is a particularly smart investment right now, given abnormally high inflation has some pundits worried about another recession.
Inflation, high for four decades, is one of the most compelling catalysts for the housing sector, which has risen 16.4% in the past 12 months as the S&P 500 barely breaks even .
“Real estate, historically, has been a very good hedge against inflation,” Sosa said. “That’s because it’s ultimately a real asset, and it’s an asset whose supply is limited by its very nature. You can’t create new lands; you can’t create desirable lands. demand continues to grow over time.”
Sosa continued: “So if you’re a long-term investor – particularly in times of inflation – again, historically speaking, if we look at times of high inflation, like the late 70s, early 80s and periods of the 90s, real estate performed well.”
Sosa said that while there is evidence that inflation is starting to peak – such as car and energy prices plummeting – and is expected to slow further in the coming years as the chain issues of supply will be resolved, higher prices are still expected to persist at least into next year. or two.
How to Invest in Real Estate During High Inflation
Investors can obtain inflation protection through real estate investment trusts, or REITs, in the following three real estate subsectors: industrial, Residentialand life sciences.
Sosa said the industrial real estate sub-sector, which includes warehouses and distribution centers, had a great run but is still benefiting from a course shift accelerated by the pandemic. He said retail chains have been disrupted by the development of three key trends: the decline of physical stores, the boom in e-commerce and the advent of two-day, one-day and even same-day delivery of goods purchased. in line.
As online order fulfillment becomes increasingly difficult and competitive, businesses are becoming more efficient by establishing multiple, smaller fulfillment centers instead of having one huge hub, Sosa said. More warehouse space is needed than ever before, which should boost REITs in the space.
“The existing warehouses that they no longer had are suitable for this online presence,” Sosa said.
The residential subsector has also taken off as a mismatch between supply and demand sends house and apartment prices soaring, Sosa said. He added that since the financial crisis, housing supply has not kept pace with demand as the US population has grown and the pandemic has caused millions to move, especially out of cities. .
Sosa said multi-family residential REITs are Bluerock’s preferred way to play this trend, adding that Sun Belt properties are particularly attractive due to the area’s lower cost of living and relative job plethora. to cities in other parts of the country. Another catalyst for this subsector is that higher real wage growth should continue to support higher rent payments.
Finally, Sosa said he is excited about the life sciences real estate sub-sector, largely due to a significant mismatch between supply and demand.
Demand for new, life-saving and life-enhancing drugs is stronger than ever, Sosa said, and job prospects in the biotech and pharmaceutical industries are strong. But building the labs these companies use can be a challenge due to specific water, ventilation and structural requirements, so labs tend to be concentrated in certain areas, Sosa said.
“You just can’t turn your run-of-the-mill office complex into a biotech hub,” Sosa said.
The strategist continued: “These kinds of very specific constraints limit real estate developers who can build or convert a life sciences complex for a life sciences tenant. And so that – and just the high demand we see for The Therapeutic Novel – really gives real estate developers and owners the upper hand in the life science industry.”
Investors who want exposure to these three real estate sub-sectors can invest in the Bluerock Total Income + Real Estate Fund, which focuses on private markets, or target REIT stocks, or ETFs comprised of REITs, in these sectors. Note that the following list of ETFs and stocks was compiled by Insider and is not an investment recommendation by Sosa.
For targeted exposure to the industrial sub-sector, investors may consider the Pacer Benchmark Industrial Real Estate SCTR ETF. The iShares Residential and Multisector Real Estate ETF is one of the best ways to gain direct exposure to the residential sub-sector. And one
Alexandria Real Estate Equities is as well-connected as any to the life sciences subsector.