Market | Portfolio update
03 | 2022
In March Russia’s campaign against Ukraine entered its fifth week, and it maintains the dominant market influence, beside new large lockdowns in China.
The initial shock seems to be increasingly dissolving. The massive uncertainty about the extent of the negative economic consequences of the war has been replaced in recent weeks by growing hopes for a diplomatic solution between Russia and Ukraine. The trend towards a diminishing risk aversion has gained additional momentum in the last weeks. So, after the losses in February North America and Asia showed a clear rebound while only Europe closed slightly negative in March. The S&P 500 gained +4.86 percent, followed by the Nikkei up with +1.18 percent and finally the Eurostoxx 50 Index, which was down by -0.42 percent (all figures in EUR). For the entire first quarter, all regions show a slightly negative performance.
REIT markets again outperformed the broader equity markets significantly not only the last month but for the first quarter as well. The EPRA Global REIT Index gained +6.73 per cent last month. North America was the main distributor for that positive development with a gain of +7.53 per cent. Asia followed with a rise of +4.37 percent. European REITs were close behind with +3.91 percent (all figures in EUR). The UK REIT index lagged the European REIT index by around 0.6 percent last month and for the whole year roundabout 0.8 percent.
Our model portfolio closed March with a remarkable plus of +6.06 percent. This results in a performance for the year of +2.53 percent, which is significantly better than the performance of the global REIT index at around -1.05 percent. In addition, it was able to achieve a dividend yield of +1.43 per cent (gross without withholding tax) for the first quarter of 2022.
In March, on a global base all sectors showed a positive performance. Best performers were two well known sectors from last year and the underperformers in January and February: Healthcare and Self Storage. While Healthcare was under pressure from rising interest rates expectation and Self Storage suffered from profit taking in the first two months of this year, in March rising occupancy rates for both sectors and therefore stronger earnings growth led to the rise in share prices.
Industrial REITs recovered significantly in March as well, as demand by both buyers and tenants still increases and therefore earnings growth will be supported within the next months. Having said that, share prices of industrial REITs are still below the levels seen at beginning of the year so that the positive valuation gap to other sectors has decreased further.
Retail and residential were least preferred last month but still with positive performance. Especially for retail REITs the valuation gap to other sectors may persist a little longer as occupancy is still recovering and rent uncertainty lingers, particularly for malls.
The combined impact of war and pandemic will lead to lower growth, higher inflation and ongoing uncertainty in the coming 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. Because of persisting high inflation, looming interest hikes and a deteriorating economic situation our total return forecast of 11 to 14 percent for 2022 could be a little bit too optimistic. We will be able to reassess this forecast during the second quarter.
Your contact persons
Dr. Thorsten Schilling
+49 69 50602 6700