| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 3.61% | - | -10.20% |
| 2025 |
|---|
| -10.2% |
Davis Real Estate Fund underperformed its benchmark in 2025 as passive investment flows dominated the market, creating gravitational attraction toward larger companies at the expense of valuation-driven strategies. The fund's performance gap stemmed from two key decisions: exiting Welltower too early as it became the largest benchmark constituent, and maintaining an overweight position in Alexandria Real Estate as life science fundamentals deteriorated. Welltower benefited from a virtuous cycle of capital raising and acquisition activity, while Alexandria's market value halved amid extended recovery timelines and dividend cuts. The managers have adapted their research process to better account for benchmark composition dynamics and passive flow impacts. Looking forward, they maintain confidence in apartment sector recovery as supply additions decline, continue backing premium office space providers despite employment concerns, and view Alexandria as attractively valued despite near-term challenges. The fund holds selective exposure to AI-related data center opportunities while monitoring technology and regulatory risks. Their value-oriented approach remains intact despite acknowledging the growing importance of company size in passive-dominated markets.
Davis Real Estate Fund employs a value-driven approach to real estate investing, focusing on companies trading at discounts to long-term fair value while navigating a market environment increasingly dominated by passive flows that favor size over valuation.
The managers expect apartment sector rent inflection to come into focus as the year progresses, particularly for Sunbelt-focused REITs. They view 2026 as a final test for West Coast office holdings while maintaining confidence in premium office space providers. For Alexandria, they see a glide path to earnings growth recovery over the next couple of years despite current complications.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Feb 12 2026 | 2025 Q4 | AMT, ARE, AVB, BRX, BXP, CPT, CUZ, DEI, DLR, EQIX, EXR, GPOR.L, HPP, MAA, PLD, REXR, SHO, VTR, WELL | AI, Data centers, Passive flows, Performance, real estate, REITs, valuation |
WELL ARE PLD EQIX DLR |
Fund focuses on real estate investment trusts across multiple sectors including senior housing, apartments, office, industrial, and life sciences. Performance was impacted by passive flows favoring larger companies and sector rotation dynamics. The fund maintains overweight positions in apartments and office while being underweight in senior housing. AI demand driving unprecedented data center space requirements with holdings in Digital Realty and Equinix benefiting from recent leasing deals. Risks include power availability constraints, transmission limitations, and potential technology disruption that could reduce data center demand over time. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
Data CentersSupply constraints curtailing infrastructure buildout rate, but compute capacity is being used immediately upon coming online. This differs from dot-com bubble when dark fiber was installed ahead of need. Labor, power and land shortages creating bottlenecks. |
Supply Constraints Utilization Bottlenecks Infrastructure |
Real EstateThe portfolio includes exposure to various real estate segments including self-storage (CubeSmart facing occupancy pressures), wireless tower infrastructure (SBA Communications), life sciences real estate (Alexandria Real Estate), and single-family rentals (Invitation Homes). The sector faces headwinds from higher interest rates and housing market challenges. |
REITs Interest Rates Housing Infrastructure Occupancy |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Feb 12, 2026 | Fund Letters | Andrew A. Davis | WELL | Welltower Inc. | Real Estate | Health Care REITs | Bear | New York Stock Exchange | Multipleexpansion, Occupancy, Passiveflows, Seniorhousing, valuation | Login |
| Feb 12, 2026 | Fund Letters | Andrew A. Davis | ARE | Alexandria Real Estate Equities, Inc. | Real Estate | Office REITs | Bull | New York Stock Exchange | Balancesheet, development, Dividendcut, Leasing, Lifescience | Login |
| Feb 12, 2026 | Fund Letters | Andrew A. Davis | PLD | Prologis, Inc. | Real Estate | Industrial REITs | Bull | New York Stock Exchange | datacenters, Industrial, Logistics, Rents, Supply | Login |
| Feb 12, 2026 | Fund Letters | Andrew A. Davis | EQIX | Equinix, Inc. | Real Estate | Data Center REITs | Bull | New York Stock Exchange | AI, Colocation, datacenters, Leasing, Power | Login |
| Feb 12, 2026 | Fund Letters | Andrew A. Davis | DLR | Digital Realty Trust, Inc. | Real Estate | Data Center REITs | Bull | New York Stock Exchange | AI, datacenters, hyperscale, Power, valuation | Login |
| TICKER | COMMENTARY |
|---|---|
| AMT | 3Q beat and raise was overshadowed by DISH (not held) claiming it should be excused from future lease payments and pressure to organic billing growth. REITs also faced pressure as long-term interest rates remained stubbornly high. |
| ARE | Worst for the quarter was Alexandria Real Estate Inc. (ARE) at -39%, as the depth and duration of the valley for biotech real estate appeared to be expanding, and the company signaled a potential dividend cut, which is at odds with our Fund's objective. Subsequent to our sale, the company cut its dividend by 45%. |
| AVB | Our top holding in this sector, AvalonBay, fared particularly poorly. That is likely due to its development focus, something investors seemed to shun regardless of sector. |
| BXP | Even though there are reasons to believe the recovery in office could be short-circuited by softening employment, we continue to be strong believers in BXP Inc. and Cousins Properties. Our thesis on office was never based on the notion that demand for space would need consistent employment growth. Rather, we believe office REITs need only win the renewal competition. In fact, closer scrutiny of the leasing done over the past couple of years by DREF's office holdings illustrates that they are winning market share at the expense of less desirable property. In a world that seems to have settled on a mostly in-office workweek, those with premium space like BXP and Cousins should continue to outperform. That they trade at compelling discounts with a number of catalysts strengthens our resolve. |
| CPT | That is particularly true for Sunbelt-focused apartment REITs Camden Property Trust and Mid-America Apartment Communities, the fund's favorite apartment ideas. Neither are likely to produce any earnings growth this year but, given that the market behaves like a barometer, valuations may begin to reflect a potential recovery in 2027, sooner than many expect. |
| CUZ | Cousins Properties (-9.9%) also detracted despite relatively stable operating fundamentals, as investor sentiment toward real estate-related equities remained challenged. |
| DEI | We've stuck with Hudson Pacific and Douglas Emmett for several years now given their historic valuation discounts and our belief their markets would eventually recover. Even though Hudson Pacific has a presence in several markets, it's the two companies' common interest in Los Angeles that has proven problematic. Southern California's economy is highly dependent on the entertainment industry. This drives a tremendous amount of space demand across multiple property types, including production studios, in which Hudson Pacific has a material interest. An unprecedented slowdown in film production over the past two years or so has curtailed property leasing in the office and studio sectors beyond our original conservative estimates. With each passing earnings release during 2025 both companies continued to push off meaningful leasing recovery. That of course did nothing for the stocks. There are a couple of catalysts for each company that we hope will propel much improved valuation, but it's fair to say we view 2026 as the final litmus test for both. |
| DLR | We continue to hold Digital Realty and Equinix at a level roughly in line with our benchmark since the risks outlined above are not likely to impact fundamentals over the near term. In fact, most of the recent leasing each REIT has done is with investment-grade companies. We consider those money-good deals. What is less knowable over the near term is how sentiment might change, which in this sector is a powerful driver of short-term stock performance. For now, we feel content to hold on to the fund's data center investments, but remain attentive to changes afoot in chip technology, energy production and energy transmission, as well as any potential regulatory hurdles to data center growth. |
| EQIX | Data center operator Equinix should benefit from the growing importance of sharing data across clouds, but the returns on a large capital spending project will delay revenue growth acceleration until 2027. We view the company as a later stage AI beneficiary, especially if all the current spending begins to produce a positive return on investment. |
| EXR | The same can be said of EastGroup Properties and Rexford Industrial Realty, though the latter was helped a good bit by shareholder activism. |
| GPOR.L | Lastly, it was nice to see the fund's investment in London-based office REITs continue to perform. The submarkets in which Great Portland invests have proven as robust as the best submarkets in the U.S. |
| HPP | An overweight position in the real estate stock Hudson Pacific Properties, Inc. (HPP) detracted from performance. The company ranks in the top 15% of the universe, driven by the ML model's favorable view of its valuation and momentum of fundamental features. HPP is a West Coast office and studio real estate investment trust (REIT) serving technology and media tenants. The stock fell during the quarter as new leasing activity fell short of expectations. |
| MAA | That is particularly true for Sunbelt-focused apartment REITs Camden Property Trust and Mid-America Apartment Communities, the fund's favorite apartment ideas. Neither are likely to produce any earnings growth this year but, given that the market behaves like a barometer, valuations may begin to reflect a potential recovery in 2027, sooner than many expect. |
| PLD | Best-in-class industrial REIT Prologis, Inc. contributed positively to performance during the fourth quarter, aided by the company's strong third quarter financial report, coupled with management's robust multi-year business outlook. We continue to believe the appreciation potential for Prologis' shares remains compelling given the strong runway for future cash flow and earnings growth in the next several years and an undemanding valuation. |
| REXR | The same can be said of EastGroup Properties and Rexford Industrial Realty, though the latter was helped a good bit by shareholder activism. |
| VTR | We added to our senior housing investment theme by purchasing shares of Ventas, Inc. Ventas is an operator of senior housing, life science, and medical office buildings. We have been encouraged by the company's continued robust fundamental results, growing investment momentum in its external growth pipeline and increasing openness to shedding slower growth assets to redeploy proceeds into higher growth areas. |
| WELL | During the height of COVID, Welltower and other healthcare real estate stocks were battered. In the span of two years Welltower's earnings dropped by a third as occupancy in its properties plummeted. Its valuation fell in sympathy and to our eye went too far. Welltower was a small position in the fund as the pandemic hit its peak, and we began adding to our position. When the pandemic receded Welltower began to show tremendous growth as it rebuilt occupancy, albeit off a very low base. Nevertheless, investors were cheered and the company began to experience multiple expansion. As its cost of equity dropped, the capital markets opened and Welltower began raising capital to purchase senior housing assets that, for all practical purposes, no one else wanted to own. That fueled even better earnings growth above and beyond what it was getting from occupancy growth. A virtuous cycle began where Welltower parlayed positive spread investing to become one of the biggest public real estate companies in existence. It is now the single largest company in our benchmark at almost 9% of its total market capitalization. This compares to 2022 when it was the fifth largest in the benchmark and only 4% of its total market capitalization. But like all good things, there are limits. Welltower has long been and still is the most expensive stock in our universe by a considerable margin, and that's after accounting for robust growth expectations. Unfortunately for us, we had completely exited the stock by January 2025. |
| Ticker | Put/Call | Amount Bought | Shares Bought | % Change | Weight % |
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