It’s all about rates and gas – hopes for slower and less rate hikes and a falling gas price led to some recovery

It was all about rising interest rates and recession fears that weighed on markets until mid of October. But then sentiment changed as reports came up according to which several central banks especially the FED are considering a less hawkish pace. Also supportive: the falling yields on government bonds and the significant decline in the price of gas. So, stocks rebounded, and all markets closed significantly higher than a month before. Again, it was Europe which did best the second month in a row with a plus of +9.12 percent, followed by North-America where the S&P 500 gained +7.04 percent. The Nikkei Index closed with +2.55 percent (all figures in EUR).

The positive development was also reflected by the global REIT markets with the exemption of Asia. Overall, the performance was weaker than the broader equity markets. Best region was Europe with a gain of +5.55 percent, followed by North America with +3.60 percent. Asia came in last as the only region with a decline of -1.32 percent. Overall, the EPRA Global REIT Index increased +2.88 percent last month (all figures in EUR). The UK REIT index was up +5.44 percent last month and is now roundabout 510 basis points behind the European REIT index so far this year.

Our model portfolio and our “QSF-DeA Global REITs” fund also ended October with positive performance. Our model portfolio recorded a gain of +5.92 percent (significantly higher than the Global Index last month), resulting in an annual performance of -18.21 percent, which is behind the performance of the global REIT index at -14.93 percent, but the difference is decreasing. The performance of our fund “QSF-DeA Global REITs” has outperformed all regions last month and recorded an overall performance of -5.53 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 +6.27 percent (gross excluding withholding tax), which is 160 basis points above the yield of the Global REIT Index.

In October, most sectors showed positive performance. The best performing sectors were lodging/resorts with +15.66 percent and retail with +9.85. The worst was residential with -2.98 percent. The main reason for the lagging performance of residential especially in the US was  the rising concern that higher interest rates could dampen down demand.

While the good performance of lodging was mainly due to technical reasons, as market participants saw the valuation gap in comparison to other sectors as too high, the good performance of retail REITs came in quite surprisingly. Yes, rebound in cash earnings is backed by tenant sales exceeding 2019 levels in 3Q, strong leasing and higher occupancy in most regions. But inflation will weigh on both tenants and consumers until stability returns leading to a tough 2023 that may linger into 2024.