Market | Portfolio update
09 | 2022
In September further tightening monetary policy and Europe’s energy crunch continued to weigh on investor sentiment.
Stocks retreated again amid bets major central banks will keep their hawkish stance to battle sky-high inflation. Additionally, hopes for a turnaround in the Ukraine war in favor of Ukraine have recently been replaced by new fears of escalation. After market participants were shocked by US consumer prices for August, German producer prices were the stumbling block too. So, stocks came under selling pressure and all markets closed again lower than a month before. Surprisingly, it was Europe which did best the first time in four months with a minus of -5.54 percent, followed by North-America where the S&P 500 lost -6.77 percent. The Nikkei Index closed with -8.45 percent (all figures in EUR).
In September global REIT markets showed a different picture and with the exemption of Asia the other regions have performed weaker than the broader equity markets. Best region again was Asia with a decrease of -8.44 percent, followed by North America with -9.69 percent. Europe the second month in a row came in last with -16.77 percent. Overall, the EPRA Global REIT Index decreased -10.03 percent last month (all figures in EUR). The UK REIT index was down -19.09 percent last month and is now roundabout 480 basis points behind the European REIT index so far this year.
Our model portfolio and our “QSF-DeA Global REITs” fund also closed September in the red. Our model portfolio recorded a loss of -13.08 percent, resulting in an annual performance of -22.78 percent, which is behind the performance of the global REIT index at -17.37 percent. The performance of our fund “QSF-DeA Global REITs” has recorded an overall performance of -10.64 percent since its inception. Nevertheless, our approach aimed at long-term stable dividend payments is confirmed: so far this year, we have achieved a dividend yield of +6.00 percent (gross excluding withholding tax), which is more than 150 basis points above the yield of the Global REIT Index.
In September, all sectors showed negative performance. The best performing sector was specialty with -7.17 percent and the worst was industrial/office mixed use with -13.90 percent. The main reason for the lagging performance of industrial/office was the rising concern of a global recession.
Data center have been at the lower band as well despite ongoing strong demand especially in Asia and North-America. Share prices have fallen due to the mix of specific developments and escalating construction costs. But as most of the companies have a strong development pipeline this should help drive incremental cash-flow contribution as projects are completed.
For retail REITs energy-price discounts, tax-free shopping for tourists and other measures may offer some respite for their retail tenants, but insolvency remains a mounting risk to rental income. For office REITs energy prices are a minor problem as energy was 1-2% of office-occupier costs, so less of a concern than rising staff costs for tenants — especially as remote working lessens office usage.
Continental rents are mostly inflation-linked, providing some buffer to the negative yield effect on property values. Yet occupants are also facing higher property expenses from soaring energy and service costs, which, put in the context of a slowing economy or recession may mean vacancy rises or tenants plea for lower rent. Nevertheless, some protection is better than no protection. Therefore, we stick to our allocation towards the more conservative sectors industrial, data center and healthcare as they typically have long-term inflation linked rental contracts.
Markets will have difficulties to reverse share-price losses until central banks prove they’ve controlled inflation.. Ongoing quantitative tightening by the major central banks is an ongoing risk for markets. But as indicated last month the slower economic growth expectations may force central banks to rise interest rates not as high as feared right now. This will support equity markets but nevertheless growth this year will be lower than expected.
Our model portfolio, whose strategy is also followed by our “QSF-DeA Global REITs” fund, has a positive annual performance despite weak equity markets. Our approach, which aims at long-term stable dividend payments, has already achieved a dividend yield of +6.00 percent (gross excluding withholding tax) so far this year and is more than 150 basis points above the yield of the Global REIT Index. We have thus far exceeded our forecast of 4.0 to 5.0 percent for the full year 2022. Other factors like high inflation, the higher interest rates and the lower economic growth will last for the rest of the year. Volatility is high and market developments are completely data driven, but nevertheless we still expect that the total return for 2022 will be positive overall.
For more information about our “QSF-DeA Global REIT’s” fund, performance, opportunities and investment opportunities, please contact us or visit deacapitalregermany.eu/dea-global-reits-fonds/.
Your contact persons
Dr. Thorsten Schilling
+49 69 50602 6700