Market | Portfolio update
04 | 2022
In April the risk sentiment of financial market players held up against interest rate fears and global economic worries but in the last week, sentiment has tilted towards “risk off”.
The war in Ukraine continues to weigh on people’s minds. In addition, the increased interest rate hike expectations and the continuing spread of the corona virus in China are tugging at the nerves of market participants. So, after the rebound in March all regions showed negative performance in April. The Nikkei was down -5.58 percent, followed by the S&P 500 with -4.11 percent and finally the Eurostoxx 50 Index, that ended the month with-1.98 percent (all figures in EUR).
REIT markets continued to outperformed the broader equity markets for the fourth month in a row. The EPRA Global REIT Index declined -0.16 per cent last month. North America was again the main distributor for development with a gain of +0.21 per cent. Asia followed with a loss of -0.78 percent. European REITs were somewhat lagging with -1.94 percent (all figures in EUR). The UK REIT index was slightly better than the European REIT index with -1.60 percent last month, but for the whole year still 140 basis points behind.
Our model portfolio closed April with a decline of -1.68 percent. This results in a performance for the year of +0.80 percent, which is significantly better than the performance of the global REIT index which is at -1.21 percent. In addition, it was able to achieve a dividend yield of +1.78 per cent (gross without withholding tax) so far this year.
In April conservative sectors like industrial and data centers were the best performers, while office and residential were the least preferred ones. Residential was under pressure especially due to rising interest rates expectations and some audit issues in Germany. Despite yields are recovering the office sector was harmed due to vacancies which may threaten rental-income growth.
Industrial and data center REITs performed well again as they delivered double-digit annual net-asset-value gains driven by the underlying growth in rental income. Yields have dropped considerably, Nevertheless, the yield advantage to central bank rates is still meaningful at more than 200 bps. Furthermore, tenant demand is still increasing and supply shortfall in logistics space and urban depots continues. Leases for these properties are often for a 15-year duration, with inflation-linked rent increases, and thus appeal to investors seeking yield, underpinned by a secure income stream, with structural demand drivers and high-caliber tenants. So, it is consensus that these sectors will deliver significant annual earnings and dividend growth for at least the next two years.
The combined impact of war and possible growth issues in China due to the pandemic may lead to lower global growth, higher inflation and ongoing uncertainty in the coming months.
Having collected year-to-date nearly 1.8 percent as dividend yield and with dividend season in full swing, we are confident that our forecast of a dividend yield of 4.0 to 5.0 percent will be reached. Adverse factors like high inflation, more interest hikes and subdued economic growth are still in place, but for the moment we stick to our total return forecast of 11 to 14 percent for 2022. We will revalue this forecast during the remaining months of the second quarter.
Your contact persons
Dr. Thorsten Schilling
+49 69 50602 6700