Hero Background Image
Spotlight

Real Estate: The Case for Active Management

June 2025 | Download PDF

 

Our active approach has outperformed the MSCI US IMI Real Estate 25/50 Index Over the Past Five Years

Baron Investor: Baron Small Cap Fund chart

 1 Institutional shares. For Retail and R6 shares, visit BaronCapitalGroup.com

 

As active managers, we have the flexibility to invest in the best and avoid the rest

Active Management
  • Employs bottom-up, research-intensive security selection
  • Emphasizes the winners and avoid the losers
  • Is discerning with sector selection, geographic exposure, balance sheet analysis, and lease duration
  • Strives to exploit market mispricings
  • Takes benchmark-agnostic approach
Passive Management
  • No fundamental analysis in building and managing a real estate portfolio
  • Simply replicates a real estate benchmark or index
  • Owns both the winners and the losers, often with inappropriate sizing vs. the prospective investment returns

 

Our real estate funds are highly differentiated from our passive and actively managed peers

  • Larger investment universe than actively managed REIT funds (326 real estate-related companies in the MSCI USA IMI Extended Real Estate Index versus only 114 REITs in the MSCI US REIT Index)
       Baron Real Estate Fund Non-REIT real estate-related companies typically represent 70% to 75% and REITs 25% to 30% of net assets
       Baron Real Estate Income Fund REITs represent at least 75% to 80% of net assets. Non-REIT dividend-paying real estate companies that may present superior growth, income, and/or share price appreciation potential than REITs may comprise 20% to 25% of net assets.
  • Less reliant on debt capital markets than traditional REIT funds (REITs must pay out at least 90% of taxable income in dividends annually)
  • Take outsized portfolio allocations driven by conviction, thematic investing, and risk-adjusted returns, not benchmark considerations
  • May own REITs and non-REITs not included in index
  • More discerning than passive real estate funds that must own entire index, regardless of quality

Featured Fund

Learn more about Baron Real Estate Income Fund.