Monthly Briefing
Market | Portfolio update
05 | 2021
In May it was all about consumer demand and inflation. In the US, even as prices rising at the fastest pace in more than a decade, consumers stay confident to increase their spending, as further Covid restriction vanished.
In Japan, the picture is less bride as Japan’s imminent extension to its virus emergency policy may cause another recession. In Europe, it was Germany, the continent’s strongest economy, which set the pace as domestic demand and economic expectations picked up. Therefore, it is not surprising that equity markets in Europe had been the winner in May. The Eurostoxx 50 gained +2.53 percent followed by the S&P 500 which was down -0.74 percent. For the second month in a row Asia was in the last place with the Nikkei index losing -1.64 percent.
Again, real estate was one of the most preferred sectors in May, so in all regions real estate markets beat the broader markets. Nevertheless, the EPRA Global REIT index lost slightly -0.31 percent last month. For the first time this year North America was not the positive performance contributor, it was Europe which took the seat. The faster vaccination success, the end of lockdown measurements across Europe and the better economic outlook were the main reasons for that development. So, Europe was the best performing region with a gain of +4.26 percent, followed by North America with a loss of -0.70 percent, followed by Asia with -1.13 percent (all figures in EUR). All European countries showed positive performance for the first time this year. Sweden, Spain and France outperformed while for the second month the UK REIT index underperformed the European REIT Index by 1.3 percent but is still 160 basis points ahead year to date.
Our model portfolio ended May with a gain of +0.65 percent. So, the overall performance for the year so far summed up to +9.28 percent. It also realized +2.20 percent dividend yield during the first five months this year (gross without withholding tax).
In May, the catch up of retail slowed down. While still with a positive performance, other sectors like industrial, office and especially self-storage did even better. Major topic has been the further ability of companies/sectors to have firepower for growth and increasing capital requirements for ESG topics which in turn will impact companies/sector’s ability to pay stable dividends. While REITs that are focused on industrial, logistics and data warehouse are trading well above net asset value, retail REITs are still experiencing huge discounts. This has consequences, for the former it is easy to get new funding either through capital increases or bond issues. For the latter it is much harder to get fresh money and even internal growth is hard to imagine as the need for retail REITs to conserve cash following limited rent collection may decrease development considerably over the next two years. Therefore, we expect that the growth differences will persist, so we still prefer industrial/logistics over retail. The office sector is somewhere in between as a higher portion of working from home and health considerations may alter demand and require design innovation to increase space flexibility.
For the next few months in 2021, the regional differences may persist depending on how fast countries are able to vaccinate and if new mutations will bring new waves of the pandemic. Nevertheless, for the summer we expect a positive development.
Overall, we stick to our forecast of a dividend yield of 5.0 to 6.0 percent and a total return of 12 to 15 percent for 2021.
Your contact persons
Dr. Thorsten Schilling
Thorsten.Schilling@deacapital.com
+49 69 50602 6700
