You are on the Investment solutions website for advisors & wealth management firms.
Browse more Fidelity websites here.
Portfolio Manager Insights
Super sale: I’m shopping for retail real estate
As supply of new properties has tightened and demand has grown, retail real estate has jumped to the top of Bill Maclay’s shopping list of appealing investments.
- Retail real estate, considered an unloved property type since the COVID-19 pandemic, has emerged from the back shelf to a front-of-store feature item for real estate investors, according to Fidelity Portfolio Manager Bill Maclay, who points to a much-improved environment driven by a more favorable supply-and-demand backdrop.
- “Investors’ concern about e-commerce displacing in-person shopping – a trend exacerbated by the pandemic – appears to have dissipated as the fundamental backdrop for retail real estate improved, with tighter supply and growing demand boosting property owners in the space,” explains Maclay, who manages Fidelity Advisor® Real Estate Income Fund.
- In helming the fund since 2019, Maclay invests across a range of commercial real estate securities, including common and preferred stock, corporate bonds and commercial mortgage-backed securities.
- He seeks to achieve what he considers a reasonable total return by combining real estate stocks and bonds, aiming for a higher yield and lower volatility than might be available through investing solely in real estate investment trust common stocks.
- With that goal in mind, Maclay has recently turned his attention to retail real estate, a category he finds newly attractive due to steadily tightening supply and the near absence of new retail center construction in the U.S. over the past 15 years.
- “After the Great Financial Crisis of 2007–2009, new construction of retail centers completely shut down,” he explains. “Today, new retail construction is lower than any other property type, while obsolete retail centers are being torn down, leading to dwindling supply of available retail real estate.”
- Meanwhile, the demand side of the equation also has shifted favorably, according to Maclay, as a growing population, rising consumer spending and a continued preference for in-person shopping have notably improved the landscape for retail property owners.
- He has observed that service providers such as gyms and medical practices – which are inherently less vulnerable to online competition – have been moving into retail locations, providing a new source of occupancy.
- Accordingly, retail rent has risen, he says, citing data from real estate research firm Green Street Advisors. Rent on renewals of expiring retail leases has increased by about 10%, leading to consistent, mid-single-digit net operating growth for retail property owners.
- Maclay claims he was quick to join the ranks of investors optimistic about the category. “I have built the fund’s exposure to the retail segment for the past year or so, with a combination of retail REIT equity, bond and preferred stock positions, as well as CMBS of retail properties,” he says.
- As examples, he cites the fund’s investments in Kimco Realty, one of the country’s largest strip center retailers, and a longtime holding in Acadia Realty Trust, an owner of “high (main trade) street” properties.
- “Both names are a good fit for the portfolio, as each represents a high-quality business with a strong property base and the potential to benefit from strengthening fundamental trends in the retail real estate industry,” Maclay concludes.
Securities mentioned were fund investments as of August 31.
FEATURED FUND
Fidelity Advisor Real Estate Income Fund (FRIRX)
Seeks higher than average income. As a secondary objective, the fund also seeks capital growth.
Related insights
View all
Portfolio Manager Insights
Super sale: I’m shopping for retail real estate
As supply of new properties has tightened and demand has grown, retail real estate has jumped to the top of Bill Maclay’s shopping list of appealing investments.
Portfolio Manager Insights
A case for short- and intermediate-maturity bond funds
Shorter-term bond strategies present an attractive risk/reward opportunity, says Fidelity’s Rob Galusza.
Portfolio Manager Insights
Housing-related stocks looking to build on a strong foundation
Fidelity's Gabriela Kelleher sees investment opportunity among homebuilders and companies that offer housing-related products, believing they can overcome a recent downtrend.
For specific fund information such as standard performance and holdings, please go to the "Funds Managed" link on this page.
Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk. Nothing in this content should be considered to be legal or tax advice, and you are encouraged to consult your own lawyer, accountant, or other advisor before making any financial decision. These materials are provided for informational purposes only and should not be used or construed as a recommendation of any security, sector, or investment strategy.
Fidelity does not provide legal or tax advice and the information provided herein is general in nature and should not be considered legal or tax advice. Consult with an attorney or a tax professional regarding your specific legal or tax situation.
Past performance and dividend rates are historical and do not guarantee future results.
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Sector funds can be more volatile because of their narrow concentration in a specific industry. Growth stocks can perform differently from other types of stocks and the market as a whole and can be more volatile than other types of stocks. Value stocks can perform differently than other types of stocks and can continue to be undervalued by the market for long periods of time. • Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. • Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. • In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation, credit, and default risks for both issuers and counterparties. • Lower-quality bonds can be more volatile and have greater risk of default than higher-quality bonds. • Floating-rate loans may not be fully collateralized and therefore may decline significantly in value. • The municipal market is volatile and can be significantly affected by adverse tax, legislative, or political changes, and the financial condition of the issuers of municipal securities. • The securities of smaller, less well-known companies can be more volatile than those of larger companies. • The funds can invest in securities that may have a leveraging effect (such as derivatives and forward-settling securities) that may increase market exposure, magnify investment risks, and cause losses to be realized more quickly. • Leverage can magnify the impact of adverse issuer, political, regulatory, market, or economic developments on a company. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Although the companies that the fund invests in may be highly leveraged, the fund itself does not use leverage as an investment strategy. Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Third-party marks are the property of their respective owners; all other marks are the property of FMR LLC.
935100.118
18327BDB010D4B46B5FC91072F23A779