1. Shaun A. Bond University of Cincinnati
March 25, 2000
ERES Conference 2009 Stockholm
The Effect of Focus on the Performance of German Mutual Real Estate Funds
Shaun A. Bond
University of Cincinnati
Steffen Sebastian
IRE|BS, University of Regensburg

2. Agenda
March 25, 2000
Motivation
Data
Empirical Analysis
Conclusion

3. Motivation Research question Specialization or Diversification?
March 25, 2000
Research question
Specialization or Diversification?
Diversification by region or by property type.
Effect of diversification on fund return and fund performance.
Various performance measures.

4. Data Desciption
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19 largest Open End Real Estate Funds (about 80% of Market Cap.)
Only authorized (retail) funds
Sample: I/1980 to II/2007 (unbalanced panel)
Data about focus is taken from semiannual reports, included if at least three consecutive years of data.
The total market capitalization in our sample increased by a factor of 30 from 2.1 bn in 1980 to 75 bn in 2007. 4

5. Evolution of OEREF

6. The Set of Data Observations and Variables
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Focus (Type or Region)
The standard measure of focus is the simple Herfindahl-index (HI).
The property type HI is defined as:
S2 is the fraction of the sum assets that is invested in property type j.
The HI can take on any value in the interval [1/m; 1] indicating either full diversification across all or full focus on one specific property types. 6

7. The Set of Data Observations and Variables
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Focus on Property Type 7

8. The Set of Data Observations and Variables
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Focus on Region
Regional Focus
Germany
98,89%
64,97%
37,81%
Overseas / Others
0,00%
8,44%
1,58%
Italy
0,20%
4,42%
Netherlands
5,04%
5,99% UK
15,71%
11,55%
Austria
0,21%
1,94%
France
2,52%
17,64%
Spain
2,71%
Belgium
0,28%
3,18%
Portugal
0,07%
0,69%
Sweden
2,55%
Hungary
0,56%
Poland
0,71%
Czech Republic
Japan
0,83%
Ireland
Luxembourg
1,08%
South Korea
0,78%
USA
1,11%
4,20%
Finland
0,32%
Mexico
Turkey
0,13%
HHI Region
98,09%
54,85%
28,68% 8

9. The Set of Data Observations and Variables
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Assets in million euro 9

10. The Set of Data Observations and Variables
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Performance
Have countries and types a influence on the real estate return?
Drawbacks:
it can not account for any interaction between countries and regions
the bs may be unstable over our long sample period 10

11. The Set of Data Observations and Variables
March 25, 2000
Performance 11

12. The Set of Data Observations and Variables
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Control variables
Size (Net Asset Value)
Property Ratio
Focus Interaction
Diversification across regions and property types may be correlated.
 bivariate HI. 12

13. The Set of Data Observations and Variables
March 25, 2000
Fund Management Costs and Gross Returns
Total Expense Ratio (TER):
Fund management remuneration
+ Depository bank remuneration
+ Expert Costs
+ Other expenditures in accordance
to General Contractual Terms
Costs of fund managing (CFM)
Gross returns : possible underperformance arises through high management costs? 13

14. Further regressions coef. t-value Intercept 5.11E-05 1.273
HHI Property Type *
8.566
HHI Regional *
7.971
HHI Bivariate *
-5.367
Market
Capitalization
-4.49E-14*
-5.802
Property
Ratio *
-2.399
R² = ; adj. R² = 0.192

15. Conclusion Preliminary results:
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Preliminary results:
Diversification leads to higher return.
Property type more important than regions.
Negative economics of scale.