The Real Estate sector earned an Unattractive rating in our 1Q18 Sector Ratings for ETFs and Mutual Funds. This ranking marks the second consecutive quarter the Real Estate sector has ranked tenth, (out of 11) since splitting Real Estate and Financials stocks into two distinct sectors in 4Q17.
Due to the large number of Unattractive-or-worse rated options, investors must be careful when choosing a Real Estate fund.
Virtus Duff & Phelps Real Estate Securities Fund (PHRAX, PHRCX, PHRIX, VRREX) is one of the Real Estate funds investors should avoid. The fund’s poor holdings and high fees diminish the likelihood that the funds will outperform moving forward. Virtus Duff & Phelps Real Estate Securities Fund is in the Danger Zone this week.
Traditional Fund Research Misses the Flaws in This Fund
Our machine learning and AI Robo-Analyst technology helps investors navigate this high-risk sector by sifting through the holdings of all 214 Real Estate ETFs and mutual funds. This diligence allows us to identify potentially dangerous funds that traditional backward-looking fund research may overlook.
Per Figure 1, PHRIX receives a 4 Star rating from Morningstar and the remaining classes receive a 3 Star rating. All four classes earn an Unattractive-or-worse rating using our Predictive Risk/Reward Fund Rating methodology. This rating methodology takes into account both costs and the individual holdings of each mutual fund, or the drivers of future fund performance.
Figure 1: Virtus Duff & Phelps Real Estate Securities Fund Ratings
Sources: New Constructs, LLC and company filingsÂ
Holdings Quality Analysis Reveals Poor Allocation vs. Benchmark
The only justification for a mutual fund to charge higher fees than its passively-managed ETF benchmark is “active†management that leads to out-performance. A fund is most likely to outperform if it has higher quality holdings than its benchmark. To make this determination on holdings quality, we leverage our Robo-Analyst technology to drill down to the individual stock level of every fund.
