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Why Now?

The US has benefited from improving property prices and sales volumes, falling vacancy rates and low mortgage rates. We anticipate that the next phase for US real estate markets will be marked by growing household formation rates and a notable increase in construction activity, supported by three factors:

Fundamentals are Broadly Supportive of the Sector

In recent years, residential supply has not kept up with household formation. This fundamental supply-demand mismatch provides a strong support for further construction and home price gains. The long-term average of new single-family housing starts is approximately 1.0 million units per year, and current levels are near 0.75 million*. We believe there is room for additional improvement relative to long-term trends.

Source: GSAM, Current Population Survey/Housing Vacancy Survey, U.S. Census Bureau, Bloomberg. As of end Dec 2015. * Source: GSAM, US Census Bureau, Bloomberg. As of end May 2016.

A Relatively ‘Early’ Cycle

The real estate cycle as a whole remains firmly in its expansion stage. Residential investment is rising towards its traditional share of the US economy, driving our belief that the market still has room to run.

Source: GSAM, Bloomberg. As of end Dec 2015.

Views and opinions expressed are for informational purposes only and do not constitute a recommendation by GSAM to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice.

Why Invest?

The Goldman Sachs US Real Estate Balanced Portfolio provides exposure to improvements in US real estate markets and potential diversification benefits through a balanced and flexible investment approach.


Fund Details


Goldman Sachs US Real Estate Balanced Portfolio

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The US Real Estate Cycle

This month, we discuss why we think the US real estate remains in expansionary phase and the investment implications.

Key Risks


Contingent Convertible (“Coco”) Bond Risk – Investment in this particular type of bond may result in material losses to the Portfolio based on certain trigger events. The existence of these trigger events creates a different type of risk from traditional bonds and may more likely result in a partial or total loss of value or alternatively they may be converted into shares of the issuing company which may also have suffered a loss in value.

Credit Risk – The failure of a counterparty or an issuer of a financial asset held within the Portfolio to meet its payment obligations will have a negative impact on the Portfolio.

Derivatives Risk – Derivative instruments are highly sensitive to changes in the value of the underlying asset that they are based on. Certain derivatives may result in losses greater than the amount originally invested.

Counterparty Risk – A party that the Portfolio transacts with may fail to meet its obligations which could cause losses.

Operational Risk – Material losses to the Portfolio may arise as a result of human error system and/or process failures, inadequate procedures or controls.

Liquidity Risk – The Portfolio may not always find another party willing to purchase an asset that the Portfolio wants to sell which could impact the Portfolio’s ability to meet redemption requests on demand.

Exchange Rate Risk – Changes in exchange rates may reduce or increase the returns an investor might expect to receive independent of the performance of such assets. If applicable, investment techniques used to attempt to reduce the risk of currency movements (hedging), may not be effective. Hedging also involves additional risks associated with derivatives.

Custodian Risk – Insolvency, breaches of duty of care or misconduct of a custodian or sub-custodian responsible for the safekeeping of the Portfolio’s assets can result in loss to the Portfolio

Interest Rate Risk – When interest rates rise, bond prices fall, reflecting the ability of investors to obtain a more attractive rate of interest on their money elsewhere. Bond prices are therefore subject to movements in interest rates which may move for a number of reasons, political as well as economic.

High Yield Risk – High-yield instruments, meaning investments which pay a high amount of income generally involve greater credit risk and sensitivity to economic developments, giving rise to greater price movement than lower yielding instruments.

Real Estate Risk – The Portfolio primarily invests in a very specific sector of the economy which can be particularly exposed to a downturn in macro-economic conditions or particular conditions affecting the property market.

Volatility Risk – An investment in the Portfolio can expose investors to higher volatility levels than is normally associated with “balanced” investment strategies, therefore the value of their investment may be subject to significant changes in the short term.

Mortgage-Backed Securities (“MBS”) Risk – The mortgages backing MBS may be repaid earlier than required, resulting in a lower return.

Other Risks – An investment in the Portfolio exposes investors to product-specific risks, which are comprehensively disclosed in the Product Highlight Sheet.