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Executive Summary

This research paper examines the performance of active and passive funds for European listed real estate in the period 2006-2021 covering a literature review, comparative statistical analysis of returns and other key fund metrics, and finally the development of an empirical model to investigate relative performance of active and passive funds and identify features of top performing funds in terms of size and strategy.

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Results indicate that active funds on average earn higher returns

The empirical analysis suggests a strong positive relationship between active management and superior risk-adjusted returns (net of fees) relative to passive management. The results indicate that active funds on average earn 3.2% higher returns relative to passive funds over the long run.

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Active managers were able to successfully shift asset allocations

The outperformance is particularly strong during the financial crisis years (2007-08), implying that active managers were able to successfully shift asset allocations to limit losses during this period of market stress. Outperformance also picks up in 2020, although the differential is fairly modest, suggesting that managers were less successful in timing the market and exploiting price dislocations during the COVID-19 crisis.

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Fund managers and investors must    remain agile

The average fund does not consistently outperform net of fees – but the results are time variant. Investigating consistent outperformers which are 34% of funds in the sample, larger funds outperformed relative to smaller funds and also outperformers tended to follow ‘growth’ (rather than ‘value’) investment strategies. This style could see a revival as economic activity picks up in the wake of the pandemic. Fund managers and investors must therefore remain agile and responsive to shifting economic and market conditions.