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Notices
Bridge over ocean
27 February 2018 Financial Analysts Journal

REIT Momentum and the Performance of Real Estate Mutual Funds

Jeroen Derwall, Joop Huij, Dirk Brounen, and Wessel Marquering

REITs exhibit a strong and prevalent momentum effect that is not captured by conventional factor models. This REIT momentum anomaly hampers proper judgments about the performance of actively managed REIT portfolios. In contrast, a REIT momentum factor adds incremental explanatory power to performance attribution models for REIT portfolios. Using this factor, this study finds that REIT momentum explains a great deal of the abnormal returns that actively managed REIT mutual funds earn in aggregate. Accounting for exposure to REIT momentum also materially influences cross-sectional comparisons of the performances of REIT mutual funds. This study has important implications for performance evaluation, alpha–beta separation, and manager selection and compensation.