How Active Is Your Real Estate Fund Manager?

Abstract

Using a holdings-based measure of active management termed the Segment Active Share, this article demonstrates the outperformance of more active commercial real estate portfolios; i.e., those with segment weights least like the index. Employing proprietary IPD data for 256 U.K. real estate funds over the period 2002–2011, we find that funds with high Segment Active Share on average outperformed the real estate market by 1.9% per year. These funds do not seem to take increased risk, and their outperformance cannot be explained by fund size alone, though on average they are smaller funds.