Market | Portfolio update
02 | 2022
February ended with Russia’s full assault on Ukraine which poses significant risks to a global economy already suffering from soaring inflation and the ongoing pandemic.
Sanctions from the West have triggered a financial crisis in Russia, which could deepen the country’s economic downturn. The two main channels for broader global impact are higher inflation and tighter financial conditions. Despite Fed will raise interest-rate in March, it may be possible that further hikes will be lower than expected depending how the war will affect global economy.
As a result, all regions showed negative performance in February. Eurostoxx 50 came in with a loss of -5.89 percent followed by the S&P 500 with -2.88 percent and finally by the Nikkei Index, which was down -1.57 percent.
The REIT markets did better than the broader equity markets. The EPRA Global REIT index lost -2.38 percent last month. In February, only Asia decoupled a little bit and ended with a small gain of +0.30 percent. The other two main regions Europe and North America were both down and much worse than Asia. Europe lost -2.59 percent and North America -3.01 percent (all figures in EUR). The UK REIT index underperformed the European REIT Index by roundabout 0.2 percent last month..
Our model portfolio ended February with a gain of +0.70 percent. Therefore, the overall performance for the year summed up to -3.33 percent. It also realized +0.81 percent dividend yield for the first two months of 2022 (gross without withholding tax).
In February only two sectors on a global base showed positive performance: Lodging/resorts and offices.
The main reason for this positive development is that market participants find these sectors undervalued meanwhile. The valuation gap to other sectors is big and prices paid in private deals are too high and offer good opportunities in the listed space to invest. Healthcare was least preferred as they are in the short term a proxy to fixed income and therefore suffered from rising interest rates. Industrial again came under pressure as possible growth impacts due to the above-mentioned conflicts became more severe. For retail REITs’ first incoming results for 2021 provide some evidence of recovery from Covid-19, switching the focus from crisis management to rebuilding. But earnings and portfolio values are still significantly below 2019 levels and growth from this base may be achieved if mall REITs embrace online and environmental issues.
As uncertainties about inflation and the outcome of the war between Russia and Ukraine prevail for the moment, it’s too early to predict how these topics will impact the economic development during the next few weeks and months. Actual financial health of the REITs, indexation of rents and already published results make us confident that our forecast of a dividend yield of 4.0 to 5.0 percent will be reached. Depending on the length of the war between Ukraine and Russia and its possible implications on the economy our total return forecast of 11 to 14 percent for 2022 could be under scrutiny.
Your contact persons
Dr. Thorsten Schilling
+49 69 50602 6700