O’Shaughnessy Asset Management argues public REITs are an overlooked area for factor investing, particularly through value, momentum, and quality signals. The paper claims many REIT managers are closet indexers with sub 60% active share, creating inefficiencies smaller, underfollowed REITs may exploit through active portfolios.
A Factor Alpha Approach to REITs
O’Shaughnessy Asset Management
Travis Fairchild, Chris Meredith
Research
6 Pages
Key Takeaways
REIT Inefficiency Opportunity: Nearly half of small cap REITs are covered by two or fewer analysts and have 75% less institutional ownership than large cap peers.
Factor Alpha Advantage: OSAM’s REIT strategy outperformed the FTSE NAREIT All Equity REIT Index by 3.1% since inception from 2012 through May 2017.
Private Market Drawbacks: Private real estate funds can hold 27% dry powder and charge 106bps to 303bps in fees, reducing realized investor returns versus public REIT exposure.
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