Market | Portfolio update
12 | 2022
After a two-month rebound, December ended weaker due to holidays with low volumes and most investors standing at the sidelines while closing year ends books.
Global stocks edged down as U.S. labor market showed stronger than expected resilience and therefore expectations that the Fed and other central banks will loosen monetary policy in the short run received headwind again. Despite the overall negative performance, it was Europe that did best the fourth month in a row with a minus of -4.04 percent closely followed by the Nikkei with -4.28 percent. North America for the second time came in on the third place with a loss of -9.26 percent (all figures in EUR). Overall, it was the worst year for the broader equity market since the great financial crisis in 2008, triggered through several aspects which led to record inflation and fast rising interest rates.
The negative development was also reflected by the global REIT markets. But overall, the performance was better than the broader equity markets. Best region again was Asia with a loss of -1.63 percent, followed by Europe with -1.70 percent. North America came in third with -8,50 percent. Overall, the EPRA Global REIT Index decreased -6.91 percent last month (all figures in EUR). The UK REIT index was down -3.00 percent last month and closed 2022 roundabout 600 basis points behind the European REIT index.
Our model portfolio and our fund “QSF-DeA Global REITs” also closed last month with a slightly weaker performance, but with an annual performance of -18.54 percent for our model portfolio and a performance of our fund of -4.50 percent since inception, they were above the performance of the global REIT index. This was -19.24 percent for 2022. Nevertheless, our approach aiming at long-term stable dividend payments is confirmed: for the whole year 2022, we have achieved a dividend yield of +6.71 percent (gross excluding withholding tax), which is 220 basis points above the yield of the Global REIT Index. This significantly exceeded our forecast of 4.0 to 5.0 percent for 2022 as a whole.
In December, no sector could manage to show positive performance. The best performing sectors were diversified with -1.95 percent and retail with -4.71 percent.
The worst was lodging/resorts with -11.74 percent. The main reason for this negative performance of lodging/resorts was mainly due to profit taking and lower than expected number of overnight stays.
For the whole year 2022, only specialty ended up in positive territory. Infrastructure like towers and pipes showed high resilience in turbulent times. Worst sectors have been residential and office. For the first mainly the financing issues of Chinese residential companies impacted the sector development. For office REITs the unclear development of future demand weighed on the sector.
The next six months will be hard for overall markets and for REITs as the battle with inflation and interest rates will continue. A better second half of 2023 requires success at a macroeconomic level to trigger a market bounce, particularly for lower-leveraged REITs and those where post pandemic property yields remain elevated. Therefore, we stick to our conservative allocation with overweight in sectors like data center and healthcare. They are supporting longer term structural changes and with their long-term leases they provide the fundament for stable dividends in the upcoming months. Additionally green buildings may be resilient, as higher costs slow new developments.
Overall, only economic stability providing visibility on interest rates can stop downward pressure on share prices. For REITs, an economic soft landing may lead to higher terminal interest rates, but greater rental values on the other hand if accompanied by GDP growth. A hard landing will trigger rate cuts, but a protracted recession could curb rental growth and lift vacancy. So, it is all about incoming economic data and figures and how the central banks will adjust the speed and magnitude of further rate hikes accordingly.
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