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May 4 2012

1st Quarter 2012 Commentary - ASTON/Harrison Street Real Estate Fund

1st Quarter 2012

Positive Market Momentum

Positive momentum from the fourth quarter of 2011 carried over into the first quarter of 2012 as U.S. equity prices surged higher. Sustained central bank liquidity in Europe and the U.S. appeared to have rekindled investor animal spirits and tolerance for more risky assets. Moreover, a rebirth of U.S. job growth, acceptable Gross Domestic Product (GDP) figures, contained inflation reports, and a decent corporate earnings season further helped to propel equity prices higher. Financial stocks captured center stage during the quarter in delivering an impressive 22% total return as financial companies were the prime beneficiaries of the economic and monetary trends.

REITS, as represented by the Fund’s FTSE/NAREIT All Equity REIT Index benchmark, only gained 10.5%, after surging more than 15% during the fourth quarter 2011. Thus, while REITs did well in an absolute sense, they lagged the Financials sector overall by a wide margin. As noted in last quarter’s commentary, REITs represent important proportions of the Russell 2000 and S&P 500 Financials Indices and generalist investors, not to mention the financial media, often conflate REITs with small-cap stocks and/or financial stocks. Although REITs moved in tandem with the smaller companies and Financials during the late 2008/early 2009 financial meltdown, REITs outdistanced both in the latter half of 2009 and all of 2010 and 2011. Given their simple, transparent, real estate ownership intensive business model, we think that over longer time spans (i.e. the multiple years in a typical real estate cycle) REITs have delivered performance akin to commercial real estate returns. During the past 10 years, the Fund’s benchmark handily bested both the Russell 2000 Index and S&P 500 Financials sector.

The Fund moderately outpaced its benchmark during the period as it outperformed in each month of the quarter to get off to a solid start in 2012. Security selection within the Lodging, Healthcare, and Industrials sectors aided that outperformance the most. Strategic Hotels & Resorts was one of a handful of Lodging REITs that contributed to returns, with Strategic surging more than 15% in January alone. The avoidance of two large-cap Healthcare names that underperformed their peers as well as the benchmark also benefited relative performance. Meanwhile, a sizeable position in small-cap Sabra Health Care REIT delivered outsized returns. A similar parallel unfolded within Industrials as large-cap Prologis began faltering in March. The Fund benefited as we reduced the portfolio’s position to zero while a growing position in small-cap STAG Industrial boosted performance.

Elsewhere, NYC office landlord SL Green Corp. advanced double-digits, while the exclusion of lagging self-storage property landlord Public Storage enhanced returns. Holdings in the Mall sector constituted the one notable lagging area for the portfolio.


Given REITs’ current and probable access to attractively priced debt and equity capital, we think the industry is poised for appealing growth and total returns. The access to capital allows for accretive investment in acquisitions and highly pre-leased development, while firming rental rates and rising occupancy levels bolster per share cash flow growth. The visibility and trajectory of REIT cash flows generated by their professionally managed portfolios of high-quality commercial real estate have been enhanced over the past three years as the industry reduced debt levels and bolstered the sector’s financial strength. Once again, the publicly traded REIT model is attracting investor attention, aiding the Fund’s benchmark in reaching a new all-time high in market capitalization, eclipsing the prior peak in 2007.

REITs shot ahead during the first quarter and investors should not expect nearly 10% quarterly returns from this asset type. However, considering the REIT industry’s balance sheet health, access to capital, lack of new competing supply, dividend growth potential, improving portfolio occupancy levels, modest discount to NAV, and fair Cash Available for Distribution (CAD)/Funds from Operations (FFO) multiples, we think REITs remain well positioned to potentially deliver positive total returns in 2012 and beyond. 

Harrison Street Securities
Chicago, IL

As of March 31, 2012, Strategic Hotels & Resorts comprised 2.36% of the portfolio's assets, Sabra Healthcare – 2.18%, ProLogis – 0.00%, STAG Industrials – 2.54%, SL Green – 5.29%, and Public Storage – 0.00%.

Note: Small- and mid-cap stocks are considered riskier than large-cap stocks due to greater potential volatility and less liquidity.

Before investing, consider the Fund’s investment objectives, risks, charges, and expenses. Contact 800 992-8151 for a prospectus or summary prospectus containing this and other information. Please, read it carefully. Aston Funds are distributed by Foreside Funds Distributors LLC. 





Aston History (212 KB, PDF)
Capabilities Brochure (2 MB, PDF)
Aston Style Box (46 KB, PDF)
Aston Subadvisers (490 KB, PDF)

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