T
he TCW Global Real Estate Fund, I Share Class (MUTF:TGREX), outperformed the S&P Global REIT Index loss of -1.18% in the quarter, generating a return of -0.59%. The underweight exposure to Industrial REITs contributed positively while the overweight in Diversified Real Estate Activities detracted from relative performance.
U.S. stocks advanced 4.3% (S&P 500 Total Return Index) during the second quarter, with market breadth remaining deficient. Only 24% of stocks outperformed the S&P 500 in the first half of 2024, led by the Magnificent 7, which now make up ~35% of the index.
The outlook for corporate profits remains robust, with net margins on track to rise next year and exceed their best level on record. Consensus earnings growth expectations have risen to 11% for this year, accelerating to a 15% growth pace in 2025.
Global REIT indices were mixed, with the RMZ (MSCI U.S. REIT Index) up +0.1% for the quarter (-0.2% YTD). The S&P Global REIT Index lost -1.2% (-3.1% YTD) vs. a gain of +3.1% (+12.5% YTD) for the S&P Global 1200.
Our portfolio was most overweight in Telecom Tower REITs and Multi-Family Residential REITs, and most underweight in Retail REITs and Diversified REITs. The Fund benefitted from its underweight to Industrial REITs and Office REITs, but detracted from performance due to its overweight to Diversified Real Estate Activities and Homebuilding.
Our best performing securities for the quarter were NexPoint Residential Trust (NXRT; 3.20%**; Multi-Family Residential REITs) and Ventas (VTR; 2.01%**; Health Care REITs). NXRT is an apartment REIT with a focus on higher growth geographies, while VTR is one of the largest healthcare REITs with operations in medical office, life sciences, triple-net, and senior housing operating properties.
We exited Independence Realty Trust (IRT; Multi-Family Residential REITs) as well as the April 20/18 BXMT put spread (BXMT April P20 and BXMT April P18; Mortgage REITs). We are becoming increasingly more constructive on the REIT space, believing that parts of the sector are now meaningfully undervalued.
The Fund's investment advisor has agreed to waive fees and/or reimburse expenses to limit the Fund's total annual operating expenses (excluding interest, brokerage, extraordinary expenses and acquired fund fees and expenses, if any) to 0.90% of average daily net assets with respect to Class I shares and 1.00% of average daily net assets with respect to Class N shares.
The securities in the index may be substantially different from those in the Fund. The value of stocks and other equity securities will change based on changes in a company's financial condition and in overall market and economic conditions.
