Morningstar Magazine - October/November 2016 - 65

office, and shopping centers, though Lee tries to offset the cyclical risks in these positions by emphasizing REITs with sturdy balance sheets. Performance Pillar: Positive ∞ This fund has gained an annualized 10.51% from its 1997 inception through June 30, the fourth-best return out of 20 funds in the real estate category during that time. The fund has achieved this strong record by being reliably good instead of flashy, and avoiding dramatic ups and downs. In the 11 calendar years from 2005 through 2015, it beat the real estate category eight times, but 2015 was the first year it ranked in the top decile, and it only ranked in the bottom quartile once. The fund has performed well in bull markets for REITs, such as 2009 and 2010, but also in periods when REITs have struggled. It did trail its peers in 2007 and 2008, the two toughest years for real estate stocks in recent memory, partly because of apartment REITs that sold off as the real estate boom ended and partly because of its lack of healthcare REITs, which typically weather slowdowns well. But it landed in the top quartile in 2013 and the top decile in 2015, when REITs struggled due to fears of rising interest rates. he spent four years as an analyst at the firm, which he joined out of Stanford business school in 1993. Previously, he was an engineer for IBM. Lee's long experience and excellent track record help earn the fund a People score of Positive. Lee also serves on T. Rowe's advisory committee for real asset strategies and advises on the $4.5 billion T. Rowe Price Real Assets PRAFX. Lee has between $100,000 and $500,000 invested in this fund, and more than $1 million in T. Rowe Price funds as a whole. Lee is backed up by five analysts, one of whom (Ted Robson) focuses on fixed income, plus a dedicated trader and a portfolio specialist. Key-person risk is something of a concern since there is no named comanager, but T. Rowe Price has a track record of smoothly handling manager transitions. People Pillar: Positive ∞ Lee is one of the real estate category's longestserving managers, having been at the helm of this fund since its 1997 inception. Before that, Parent Pillar: Positive ∞ T. Rowe Price is an industry leader, with a strong lineup of funds spanning many asset classes. The firm's disciplined, risk-conscious investment process has consistently produced successful results across its fund lineup, often with less volatility than peers. Many managers spend their careers at the firm, providing continuity for fund shareholders. Manager retirements are typically announced well in advance, allowing for a long transition process. Style Map 08/31/2016 Regional Exposure Stats 08/31/2016 Giant Large Mid Small Micro Deep Value Blend Growth High Value Growth After a few unexpected departures of top managers in 2013 and 2014 and an uptick in analyst departures on the U.S. equity team, the pace of turnover has slowed. The departure of head of fixed income Mike Gitlin was a surprise, but the firm quickly filled the role with 31-year T. Rowe Price veteran Ted Wiese. Other executive changes have been handled with ease, including the departure of CEO James Kennedy, who was succeeded by Bill Stromberg in 2016. Price Pillar: Positive ∞ The fund has a low 0.76% annual expense ratio, which is significantly cheaper than the real estate category average and the fund's average actively managed peer. That expense ratio also falls comfortably in the specialty no-load comparison group's cheapest quintile. The fund's Advisor share class costs 0.26% more, but even that fee level is below-average for similarly distributed share classes. K David Kathman, CFA, is an analyst with Morningstar's manager research group. Rolling-Returns Summary 08/31/2016 45% Centroid: Weighted avg. of equity holdings 38 17 0 Zone: 75% of fund's equity holdings Americas: 100.0% Europe & Africa: 0.0% 36-Month Rolling Periods 160 Observations, 13 Years. The shading and percentages correspond to how often the fund's returns landed in each category quartile. Asia & Australia: 0.0% global.morningstar.com/Morningstarmagazine 65 http://global.morningstar.com/Morningstarmagazine

Table of Contents for the Digital Edition of Morningstar Magazine - October/November 2016