B
aron Real Estate Fund® (the Fund) posted a 10.25 % rise in its Institutional Shares during Q3, outpacing the MSCI US REIT Index (4.49 %) and the MSCI USA IMI Extended Real Estate Index (5.65 %). As of 30 Sep 2025, Morningstar ranks the Fund #1 for 15‑ and 10‑year returns, top‑10 % for 3‑year, top‑6 % for 5‑year, and holds a 5‑star rating across 10‑, 5‑, and 3‑year periods, with an overall 5‑star rating. In the Morningstar Real Estate Category, the Fund sits in the 1st percentile for 10‑, 5‑, 3‑, 15‑, 10‑year, and inception periods, and is the 7th, 2nd, 10th, 1st, 1st, and 1st best‑performing share class in absolute terms.
Cumulative returns since inception (31 Dec 2009) total 629 %, more than 2½× the REIT Index (230 %) and 432 % for the MSCI Real Estate Index. The Fund’s expense ratios are 1.31 % (Retail) and 1.05 % (Institutional). Performance figures are net of operating expenses and exclude sales charges.
**Key Themes & Outlook**
* **Positive cycle** – Executives from Blackstone, Prologis, CBRE, Toll Brothers, Hilton, and CoStar signal a strengthening cycle, with Blackstone noting lower values and limited new supply.
* **Valuation advantage** – Public real estate trades at discounts to replacement cost; private capital is poised to step in, creating an “embedded put” that caps downside.
* **Long‑term drivers** – E‑commerce, aging demographics, travel demand, data centers, and proptech offer secular tailwinds.
* **Competitive supply** – New construction has stalled; higher land, labor, and borrowing costs constrain supply, favoring existing assets.
**Portfolio Composition (30 Sep 2025)**
* REITs 27.2 %
* Non‑REITs 71.0 % (Building Products/Services 19.6 %, Real Estate Service Companies 14.8 %, Operating Companies 10.9 %, Homebuilders & Land Developers 9.6 %, Hotels & Leisure 6.9 %, Casinos & Gaming 6.2 %, Data Centers 2.8 %, Infrastructure 0.2 %, Cash 1.8 %)
**Investment Themes**
1. **REITs** – High occupancy, inflation protection, dividend growth; 10 categories (Health Care, Data Center, Office, Industrial, Wireless Tower, Mall, Multi‑Family, Single‑Family, Mortgage).
2. **Residential‑related** – Building products, homebuilders, home centers; long‑term supply‑demand gap.
3. **Travel‑related** – Hotels, casinos; experience‑driven demand.
4. **Commercial services** – CBRE, JLL; outsourcing and institutionalization trends.
5. **Alternative asset managers** – Blackstone, Brookfield; growing alternative asset pie.
6. **Proptech** – CoStar; digitization and data monetization.
**Top Contributors (Q3)**
* Wynn Resorts (+1.20 %) – 13.3 B cap, 37.3 % Q2 gain.
* JLL (+0.96 %) – strong Q2 results, market‑wide rebound.
* CRH (+0.95 %) – diversified building materials, double‑digit earnings growth.
* Toll Brothers (+0.92 %) – resilient homebuilder.
* Welltower (+0.82 %) – senior housing.
**Top Detractors (Q3)**
* American Tower (–0.46 %) – delayed U.S. billings, DISH churn risk.
* Airbnb (–0.17 %) – growth deceleration concerns, margin pressure.
* Floor & Decor (–0.10 %) – cyclical remodel slowdown.
* American Homes 4 Rent (–0.08 %) – modest performance.
* Hilton (–0.06 %) – travel volatility.
**Recent Activity**
* **Net purchases** – Iron Mountain (27.1 M), AAON (25.2 M), Floor & Decor (19.3 M), Blackstone (5.2 M), Vulcan Materials (4.7 M).
* Iron Mountain: records management + data center growth.
* AAON: HVAC and BASX cooling solutions; post‑ERP rebound.
* Floor & Decor: large‑format stores, pricing power, expansion to 500 stores.
* **Net sales** – CoStar (14.1 M), Independence Realty (12.5 M), Vornado (8.5 M), Welltower (8.2 M), IBP (6.1 M).
* Trimmed positions after price appreciation; reallocated to higher‑return prospects.
**Concluding Outlook**
The Fund sees no single catalyst but a confluence of factors—steady demand, limited supply, strong credit markets, and potential Fed rate cuts—that should lift fundamentals and valuations. With a focus on high‑margin, low‑leverage companies, the Fund expects continued cash‑flow growth, dividend expansion, and valuation improvement, positioning it for compelling total shareholder returns.
**Top Holdings (30 Sep 2025)**
1. JLL – 6.4 %
2. Brookfield – 5.4 %
3. CBRE – 5.3 %
4. Welltower – 5.3 %
5. Toll Brothers – 4.7 %
6. Wynn Resorts – 4.1 %
7. CRH – 3.8 %
8. Blackstone – 3.4 %
9. Equinix – 3.2 %
10. American Tower – 3.2 %
The Fund’s core team remains focused on identifying competitively advantaged real‑estate companies that generate strong cash‑flow growth, aiming to deliver robust long‑term performance for shareholders.
