Serenity Alternative Investments Blog - Evaluating REITS In 2020: Patience, Perspective, Opportunity

Serenity Alternative Investments Blog - Evaluating REITS In 2020: Patience, Perspective, Opportunity

“Patience you must have” – Yoda

• PERFORMANCE – Serenity Alternatives Fund I returned +3.7% in April bringing YTD returns to -0.2%. The MSCI US REIT index returned +8.25% bringing YTD returns to -21.0%.
• PROCESS – REIT fundamentals continue to deteriorate. Risk management and patience remain points of emphasis.
• OPPORTUNITY – Bargains exist in the REIT market but are not widespread. Having an expert in your corner is important now more than ever.

In our modern world of Zoom meetings, same-day delivery, twitter, and streaming video, it’s not surprising that many investors lack patience. If my e-mail inbox is any indication, within the last two months, investors have gone from petrified to chomping at the bit, ready to snap up bargains across every asset class.

Investing, unfortunately, is not as easy as just buying things when they go down. The stock market tends to zig just when you are sure it’s going to zag, manipulating investors’ emotions, and then punishing those without an investment process.

To succeed over the long term takes emotional discipline and patience, something the OG Jedi-Master Yoda tried to impart to Luke Skywalker. Part of the reason Star Wars remains so socially relevant is that these core tenants are still difficult to master, maybe today more than ever.

So if you find yourself licking your lips imagining the epic returns you are going to generate buying distressed assets during the current recession…take a minute and consider the Jedi master’s advice. We are only two months into a period of significant economic distress and buying a security when even the people running the business don’t know what is going on is extremely risky.

PERFORMANCE: +3.7% IN APRIL, -0.2% YTD

Serenity Alternatives Fund I returned +3.7% in April with an average net exposure of 1.2%. The fund’s Sharpe ratio for the month was 4.52, illustrating a large amount of return per unit of risk delivered to our investors. The fund is now down -0.2% for the year, while the REIT index is down –21.0% YTD. From here REITs have to achieve a +25% return to get back to even, while our fund is back to its high-water mark. From this position, we can continue to grind out low-risk returns while waiting for fundamentals to stabilize.

It’s rare for our strategy to carry such low levels of risk, but as everyone knows we live in exceptional times. We remain of the opinion that many REITs still have serious downside risk and are happy to wait and watch for more compelling opportunities. As we have previously stated, the fund will continue to increase its exposure to high-quality real estate portfolios with fortress balance sheets at highly discounted valuations. The fact that our net exposure remains very low is reflective of the fact that few of these opportunities currently exist.

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