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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Higher-for-longer interest rates and restricted lending are throttling new real estate supply, creating a favorable structural environment where well-capitalized listed property operators can drive external growth through disciplined asset acquisitions."
The Virtus Duff & Phelps Global Real Estate Securities Fund returned -6.33% net of fees in the third quarter of 2026, lagging its benchmark, the FTSE EPRA Nareit Developed Index, which posted a net return of -6.10%. Year-to-date, the fund has advanced 4.39% net of fees versus 2.95% for the index. Relative quarterly underperformance was primarily driven by adverse country allocation, even as security selection generated positive alpha. Rising long-term government bond yields—exemplified by the U.S. 10-year Treasury climbing to 5.28%—created acute headwinds across rate-sensitive asset classes, leaving specialty, residential, and retail property sectors as primary performance drags, while healthcare, industrial, and lodging held up relatively well. The macroeconomic environment was defined by renewed geopolitical friction, surging energy prices, and central bank policy rate hikes, cementing a higher-for-longer interest rate regime. Despite macro volatility, commercial real estate supply-demand dynamics remain resilient. Elevated construction costs, tightened commercial lending standards, and restricted access to debt capital have choked off new building deliveries across several core sub-industries. This dynamic creates an enduring supply cushion and opens up compelling acquisition opportunities for well-capitalized institutional buyers targeting discounted platforms. Portfolio contributors were led by Swire Properties, buoyed by improving Hong Kong office and mainland China retail fundamentals, alongside Welltower, which captured expanding operating margins and pricing power across senior housing. Detractors included Iberian real estate operator Merlin Properties, pressured by proposed Spanish renewable energy requirements on data center builds, and Australian data center operator NEXTDC, weighed down by elevated capital expenditure financing needs and local development opposition.
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