Real estate fund active management

Abstract

This is the accepted version of the paper.This version of the publication may differ from the final published version. Permanent repository link: Abstract:The traditional way to measure the active management of a fund is to calculate its tracking error: as measured by the standard deviation of the difference in a fund's returns versus its benchmark returns. However, tracking error alone is an inadequate measure of fund activity since even very actively managed funds can in fact generate rather low tracking errors. Therefore judging the activity level of a fund based solely on tracking error can be misleading. In addition, while tracking error volatility is easy to calculate it only infers what the manager is doing at the portfolio level and does tell you how the tracking errors were generated. For instance, Cremers and Petajisto (2009) argue that the two distinct approaches to active management, stock selection or factor risk, can produce significantly different tracking errors.Instead of using tracking error alone Cremers and Petajisto (2009) suggest that a more comprehensive picture of active management can be achieved by including Active Share into the calculations, where the Active Share of the fund is measured as half the sum of the absolute difference between the fund's holdings and those of the benchmark portfolio. In other words, Cremers and Petajisto (2009) claim that using Active Share and tracking error together enables investors to distinguish between the types of active management used by funds, stock selection and factor risk, and so classify funds by their investment management strategy: pure indexes, closet indexes, diversified stock pickers, concentrated stock pickers, and factor bets.

Eurozone regulation bias in the active share measure

“…For example, Jiang et al (2014) find that overweighted positions in funds relative to their benchmarks have outperformed their underweighted positions, showing the shrinking fraction of assets managed by activefund managers. Muller and Weber (2012), Lee and Morri (2015), and Frijns and Indriawan (2018) are recent papers confirming that previous results for US mutual funds hold in other markets, such as New Zealand and Europe.…”

An Exploration of Real Estate Investment Decisions and the Significance of Green Certificates: Towards a Multi-Attribute Decision Model

“…Source: Own presentation With a total of 15 out of 20, an equal number of participating firms were real estate investors or investment managers active in the core-plus investment area. Core-plus properties resemble core properties in many ways, but they require a certain degree of active management (Lee & Morri, 2015). For instance, an office property might be located in the Central Business District (CBD) in Frankfurt but has vacant areas.…”

“…Seventeen firms indicated that they were active in the value-add investment segment. Valueadd investors conduct active asset management to a higher degree than core-plus investors, for instance, by refurbishing or reconstructing a property (Lee & Morri, 2015). Thus, valueadd investors add value to their investments.…”

“…This difference in focus is because core investors require a steady but usually lower cash flow (van der Spek, 2017), while value-add investors focus on adding value through refurbishments and/or an appreciation of the submarket (Lee & Morri, 2015). Section 3.7.1.3 discussed the differences between core and value-add investors and described why I have decided to assess both risk and return types separately in Research Phase 2.…”