Started in 1986, the Fidelity Real Estate Investment Port (FRESX) is one of the oldest mutual funds managed by Fidelity, with approximately $5.4 billion of assets under management (AUM) since February 2016. The fund seeks a combination of current income and capital appreciation by investing in companies that operate real estate businesses. Major holdings of the fund are common shares of publicly traded real estate investment trusts (REITs). The fund's advisor, Fidelity Investments, is a highly respected wealth management company that has $2 trillion of AUM and hundreds of mutual funds and exchange-traded funds (ETFs), making it one of the largest asset management companies in the world.
The fund investment strategy combines a bottom-up approach with top-down view. The fund's management starts with selecting REITs and sometimes non-REIT stocks of companies involved in the real estate industry based on various fundamental factors, such as earnings growth, healthy financial position and the underlying properties. The fund also considers a wide variety of valuation indicators, including dividend yield and various price multiples. After that, the fund employs a quantitative model that rates each stock using the above-mentioned factors as well as various technical indicators. The bottom-up analysis is then supplemented with a top-down look at macroeconomic conditions for the final selection of holdings.
The fund typically holds a concentrated portfolio of 40 to 60 stocks. The fund has concentrated its holdings on stocks of companies that operate in real estate market segments such as industrial and office with a 25.05% allocation, residential with a 23.51% allocation, retail with a 23.46% allocation and self-storage with a 9.12% allocation. The top 10 holdings of the fund represent 45.17% of its assets and include companies such as Public Storage (NYSE: PSA), Simon Property Group, Inc. (NYSE: SPG), Digital Realty Trust, Inc. (NYSE: DLR), Prologis, Inc. (NYSE: PLD) and Ventas, Inc. (NYSE: VTR). Most of the fund's holdings are small- and medium-cap companies with a combined portfolio weight of about 65%.
The fund has been managed by Steve Buller since 1997. Buller joined Fidelity in 1992 after receiving his Master of Science degree in Finance from University of Wisconsin and has been with the firm since then. Buller has employed a consistently flexible approach to managing the fund's portfolio and adjusting its composition with changing economic conditions. Unlike other managers, Buller pays particular attention to macroeconomic factors before making a final call on his stock picks. He prefers a relatively small portfolio with a smaller degree of diversification, in which some of its holdings can account for over 7% of the fund's assets.
Because most REITs are required to distribute over 90% of their earnings in the form of dividends, the Fidelity Real Estate Investment Port generates some of its returns from dividend distributions from its holdings. As of September, 2016, the fund had a 30-day Securities and Exchange Commission (SEC) yield of 2.28% and a trailing 12-month yield of 1.57%. For the three-year period, the fund has shown an average return of 8.75%, a standard deviation of 14.71% and a Sharpe ratio of 0.64. For the five-year period, the fund has shown slightly better metrics by demonstrating an average annual return of 9.76%, a standard deviation of 15.99% and a Sharpe ratio of 0.66. Finally, for the 10-year period, the fund's performance has been somewhat lower with an annual average return of 5.84%, a standard deviation of 26.5% and a Sharpe ratio of 0.31.
The fund has received a four-star overall rating and a bronze analyst rating from Morningstar in the real estate category. Also, for the three- and five-year periods, Morningstar gave the fund a four-star rating, while for the 10-year period, the fund rating agency gave it a three-star rating.
The fund has one of the lowest fees among its peers investing in real estate stocks. The fund's net expense ratio of 0.78% is much lower compared to the average net expense ratio of 1.32% in the Morningstar real estate category. The fund requires its investors to contribute at least $2,500 as an initial investment.