Fidelity Portfolio Manager Sam Wald is finding compelling investment potential among senior-housing real estate investment trusts, which he believes are supported by favorable market technicals and other industry tailwinds.
“There’s currently a big mismatch between supply and demand of senior-housing REITs,” says Wald, who co-manages Fidelity® Stock Selector Mid Cap Fund (FSSMX). “And new supply hasn’t been created because rents haven’t justified the construction of additional facilities.”
The diversified domestic equity strategy targets the mid-cap segment of the market, with Wald overseeing the real estate securities subportfolio. He employs a bottom-up, or stock-by-stock, investment approach, working closely with Fidelity’s team of analysts to assess the relative attractiveness of individual REITs and identify potential opportunities arising from material pricing inefficiencies in the market.
Several factors have contributed to the supply/demand imbalance in senior-housing REITs, according to Wald. From the mid to late 2010s, an oversupply of facilities emerged as companies aimed to meet both current and anticipated future demand, driven by aging populations in North America and Europe.
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With the onset of the COVID-19 pandemic, however, demand plunged as people delayed their decision to move into group housing, even as supply was elevated, he explains.
“At the same time, interest rates and building costs went up considerably,” says Wald. “Together, these factors created an unusually difficult environment for senior-housing operators.”
Fast-forwarding to today, Wald emphasizes that demand has returned as the pandemic has receded. Meanwhile, supply is constrained.
Among publicly traded health care REITs, the senior-housing industry consists of two main players, Ventas (VTR) and Welltower (WELL). Wald has positioned the fund with an outsized investment in Ventas (as of October 31), reflecting his belief that the company presents a comparatively attractive valuation and upside potential.
“In both cases, though, I believe the industry’s supply/demand mix is favorable enough to help support the stocks for the next several years, even if a slowing economy leads to a period of equity-market underperformance,” he concludes.
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Sam Wald is a portfolio manager in the Equity division at Fidelity Investments.
In this role, Mr. Wald manages a number of real estate/REIT equity portfolios offered in various stand-alone and multiasset class vehicles, which are distributed across various distribution channels. He is also a co-manager of the FIAM Small/Mid Cap Core Commingled Pool and FIAM Small/Mid Cap Core Real Estate Sub Portfolio.
Prior to assuming his current position in 2004, Mr. Wald held various other positions at Fidelity Management & Research Company LLC, including that of research analyst and research associate in the Equity Research division covering real estate, REITs, and specialty and generic pharmaceuticals stocks. He has been in the financial industry since joining Fidelity in 1996
Mr. Wald earned his bachelor of science degree in finance, magna cum laude, from Yeshiva University. He is also a CFA® charterholder and he earned the CFA institute certificate in ESG investing and has been published in The Journal of Portfolio Management.