Monthly Briefing
Market | Portfolio update
05 | 2022
In May a variety of stress factors – especially rising interest rates and inflation – have kept the financial markets in suspense.
Increasing global uncertainty, with a toxic combination of high inflation, massive shortages of energy and food, and general tendencies towards deglobalization as a result of the Ukraine crisis weighted on the global economy, but surprisingly it wasn´t really reflected by the financial markets last month. Fears of more aggressive rate hikes because of spiking inflation were mitigated by hopes that trade tensions between China and the US will be easing in the coming months. So, after their decline in April two regions rebounded in May. Best performer was the Nikkei which was up +1.41 percent, closely followed by the Eurostoxx 50 index with +1.34 percent and finally the S&P 500 index, that ended the month with a loss of -1.52 percent (all figures in EUR).
REIT markets for the first time this year performed more conservative than the broader equity markets. The EPRA Global REIT Index declined -6.55 percent last month. All regions were in negative territory. Asia was down -1.63 percent, followed by European REITs with -4.62 percent. North America, outperformer until May, came in last and declined -7.69 percent (all figures in EUR). The UK REIT index was down -7.11 percent last month and is now 374 basis points behind the European REIT index.
Our model portfolio closed May with a decline of -4.41 percent. This results in a performance for the year of -3.64 percent, which is significantly better than the performance of the global REIT index which is at -7.68 percent. In addition, it was able to achieve a dividend yield of +3.53 per cent (gross without withholding tax) so far this year.
In May only the sectors “specialty” and “healthcare” of the REIT universe showed positive or stable performance, while all others weakened. In May “industrial”, one of the best performer in April, gave up its gains last month. Beside some profit taking the rising inflation dampened down retail sales with side effects on online retail and logistics especially in the UK (Amazon mentioned overcapacities in staff and warehouse space). In continental Europe, where the online penetration is lower slowing retail sales had less impact on warehouse demand up to now.
Healthcare REITs, despite rising interest rates, were stable last month as they saw growing funds from operations.
The office and retail sector was under pressure too as they are are challenged by structural changes which may not see rents rise enough to counter higher interest rates as inflation is imported. Especially for malls and offices in non-prime locations where tenants may face lower consumer spending, occupants may vacate rather than pay higher rents.
So, we still prefer the more conservative sectors Industrial, data center and healthcare as they typically have long-term inflation linked rental contracts which should provide protection in the short-term as well. Furthermore, especially in continental Europe tenant demand is still increasing and supply is scarce. Therefore, these sectors will deliver significant further earnings and dividend growth.
China is reopening some of its major production centers, so the supply constrains should be easing in the future. This with a delay will be reflected in the markets. From a current point of view the inflated prices for raw materials induced by the war in Ukraine will cause inflation to persist longer than expected a couple of months ago.
Having collected year-to-date more than 3.50 percent as dividend yield, we are still staying with our forecast of a dividend yield of 4.0 to 5.0 percent for the whole year 2022. Other factors like high inflation, more interest hikes and lower economic growth will last longer than expected, but currently we still believe that the total return for 2022 should be in the low double digits. Therefore, we actually see no reason to change our total return forecast of 11 to 14 percent for the year 2022.
Your contact persons
Dr. Thorsten Schilling
Thorsten.Schilling@deacapital.com
+49 69 50602 6700
