Monthly Briefing
Market | Portfolio update
06 | 2021
The second quarter of 2021 ended like the first did, with an all-time high in the U.S and the other major equity markets closing near their all-time highs.
Yes, the Corona virus has not disappeared, but global markets are enthusiastic about the speed of the recovery and the economic outlook ahead. This was supported by central banks opinion that the rising inflation is just a sign of the positive economic development and nothing to worry about right now. Therefore, rising interest rates are off the table. In the U.S., the labor market is promising, and projections suggest that full employment will be reached in the first half of 2022.
In Asia, especially in China and in Australia as well, the recovery is entering a more advanced and stable stage. The rapid rebound early in the first quarter will be followed by a slowdown over the rest of the year, restrained by production bottlenecks, softening exports and sluggish consumption.
In Europe, after the third wave of infections in several countries had delayed the economic recovery in the second quarter the hopes for an economic recovery in the second half of the year are rising. Vaccination progress got momentum and allowed several countries to lower their restrictions and helped the service sector (non- essential retail and hospitality) to recover. Nevertheless, Europe is lagging the U.S. and Asia and the level of growth is lower as well. So, it is not surprising that the ECB kept their loose monetary policy and announced not to change this in the next few months. In June, S&P 500 was up +5.37 percent, followed by Asia where the Nikkei gained +1.55 percent and Europe (Eurostoxx50) with an increase of +0.71 percent. For the first half of 2021 this results in a gain of roughly 19 percent for North America and 16.6 percent for Europe, while Asia (Japan) is less dynamic with an increase of only 2 percent (all figures in Euro).
Except for Asia, real estate markets slightly underperformed the broader markets in June. Overall, the EPRA Global REIT index gained +4.55 percent last month, mostly driven by North America with its strong economic recovery. Not surprisingly North America was the best performing region with a gain of +5.27 percent, while Asia was second with an increase of +4.58 percent, followed by Europe with a decrease of -0.76 percent.
Therefore, the overall performance figures for the first half ended with the following ranking: first in class North America +26.04 percent, second place Europe with +13.87 percent, followed by Asia with +12.27 percent (all figures in EUR).
The UK REIT index outperformed the European REIT Index by 0.12 percent in June and for the whole year it is still ahead 170 basis points.
Our model portfolio ended June with a gain of +2.11 percent. So, the overall performance for the first half of 2021 summed up to +11.58 percent. It also realized +2.62 percent dividend yield this year so far (gross without withholding tax). Within the portfolio healthcare and industrial/ logistic REITs have finished the first half of 2021 as best performer. Main reason for this development is the long-term stable and predictable income stream of healthcare and logistic properties with long-term leases.
The comeback of Retail REITs slowed down a little bit within the second quarter after outperforming other sectors in the first quarter. Especially the U.S mall REITs have reversed their share price drop in 2020, as latest rent and occupancy data were more resilient than expected. The performance of their European peers was not as good as some of the bigger names canceled dividend payments for this year. Empty stores could take a year or more to fill, even in well-located, high-quality locations, keeping pressure on retail-REIT occupancy and net operating income for the rest of the year. We are therefore still cautious and will not actively expand our exposure into retail at the current stage..
Overall self-storage was the best performing sector, while data centers, the star sector of 2020, lagged as some investors took the opportunity to cash in gains. As another remarkable development, June inflows into real estate funds were the highest since years as market participants expect a further recovery of real estate prices and rents due to the bright economic outlook.
For the next few months in 2021, we expect that uncertainty about the duration (vaccination speed) and further evolution of the corona crisis (new mutations, new waves) will persist but overall, the outlook seems better than two or three months ago, especially as the two biggest economies of the world, the U.S. and China, show a strong “V”-shaped recovery. Furthermore, we expect more M&A activities and corporate actions in the second half of this year as companies try to seek advantages from low interest rates and valuations.
Therefore, we are confident that 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 will be reached and maybe even higher.
Your contact persons
Dr. Thorsten Schilling
Thorsten.Schilling@deacapital.com
+49 69 50602 6700
