Let’s go! Is it time for property equities to shine?
Following the Fed’s rate cut decision, Co-head of Global Property Equities, Tim Gibson, explains why investors who have been on the fence about investing in property equities may want to reconsider.
1 minute watch
Key takeaways:
- The extent of the US Federal Reserve’s (the Fed) rate cut isn’t key, what’s key is that the rate-cutting cycle has commenced.
- The magnitude of interest rate hikes over the last few years has now given the Fed the firepower to deal with any future economic challenges.
- While underweighting property equities may have been the right call over the last few years, the asset class now looks well positioned relative to broader equities.
Basis points (bps): one basis point equals 1/100 of a percentage point. 1 bp = 0.01%, 100 bps = 1%.
Underweight: when a lower weighting of an individual security, asset class, sector, or geographical region is held, relative to the portfolio’s benchmark.
FTSE EPRA Nareit Developed Index tracks the performance of real estate companies and real estate investment trusts (REITs) from developed market countries.
JHI
IMPORTANT INFORMATION
REITs or Real Estate Investment Trusts invest in real estate, through direct ownership of property assets, property shares or mortgages. As they are listed on a stock exchange, REITs are usually highly liquid and trade like shares.
Real estate securities, including Real Estate Investment Trusts (REITs), are sensitive to changes in real estate values and rental income, property taxes, interest rates, tax and regulatory requirements, supply and demand, and the management skill and creditworthiness of the company. Additionally, REITs could fail to qualify for certain tax-benefits or registration exemptions which could produce adverse economic consequences.
So now we know. The only question that the markets needed answering, was 25bp or 50bp? But frankly speaking does this matter?
What matters more is that the rate-cutting cycle has begun. The next question that the market will probably focus on is, ‘how many cuts will there be and when will they happen?’
Honestly speaking, we don’t know, and if the market is being honest, neither does it! The good news is that because rates have moved from 0% to 5.25% over the last few years, this means that the Fed [US Federal Reserve] has an enormous amount of firepower to deal with whatever the future may throw at it.
Now that the first rate cut is now in, the investment backdrop that investors have to navigate will also change. There’s no doubt that the past few years for listed property has been pretty awful for investors, and positioning reflects this, indeed you have to go back to the GFC [Global Financial Crisis] to find a time when investors were this underweight the sector. So whilst being underweight the sector was the right call over the last few years, is this still the correct way to be positioned for the future?
The starting pistol on rate cuts has been fired, and even after the recent pick up in performance,* listed property has never been this well positioned at this point in the cycle to take advantage of future rate cuts to come. Are you?
*Global property equities = FTSE EPRA Nareit Developed Index in USD terms. Past performance does not predict future returns.
Important information
Please read the following important information regarding funds related to this article.
Key investment risks:
- The Fund's investments in equities are subject to equity securities risk due to fluctuation of securities values.
- Investments in the Fund involve general investment, currency, liquidity, hedging, market, economic, political, regulatory, taxation, securities lending related, reverse repurchase transactions related, financial, interest rate and small/ mid-capitalisation companies related risks. In extreme market conditions, you may lose your entire investment.
- The Fund may invest in financial derivatives instruments to reduce risk and to manage the Fund more efficiently. This may involve counterparty, liquidity, leverage, volatility, valuation and over-the-counter transaction risks and the Fund may suffer significant losses.
- The Fund’s investments are concentrated in European property sector (may include small/ mid capitalization companies). It may be more volatile and subject to property securities related risk.
- The Fund may invest in Eurozone and may suffer from Eurozone risk.
- The directors may at its discretion pay distributions out of gross investment income and net realised/ unrealised capital gains while charging all or part of the fees and expenses to the capital, resulting in an increase in distributable income for the payment of distributions and therefore, the Fund may effectively pay distributions out of capital. This amounts to a return or withdrawal of part of an investor's original investment or from any capital gains attributable to that original investment, and may result in an immediate reduction of the Fund’s net asset value per share.
- The Fund may charge performance fees . An investor may be subject to such fee even if there is a loss in investment capital.
- Investors should not only base on this document alone to make investment decisions and should read the offering documents including the risk factors for further details.
Key investment risks:
- The Fund's investments in equities are subject to equity securities risk due to fluctuation of securities values.
- Investments in the Fund involve general investment, currency, liquidity, hedging, market, economic, political, regulatory, taxation, securities lending related, reverse repurchase transactions related, financial and interest rate risks. In extreme market conditions, you may lose your entire investment.
- The Fund may invest in financial derivatives instruments to reduce risk and to manage the Fund more efficiently. This may involve counterparty, liquidity, leverage, volatility, valuation and over-the-counter transaction risks and the Fund may suffer significant losses.
- The Fund’s investments are concentrated in property sector and may be more volatile and subject to property securities related risk.
- The Fund may invest in Eurozone and may suffer from Eurozone risk.
- The directors may at its discretion pay distributions (i)out of gross investment income and net realised/ unrealised capital gains while charging all or part of the fees and expenses to the capital, resulting in an increase in distributable income for the payment of distributions and therefore, the Fund may effectively pay distributions out of capital; and (ii) additionally for sub-class 4 of the Fund, out of original capital invested. This amounts to a return or withdrawal of part of an investor's original investment or from any capital gains attributable to that original investment, and may result in an immediate reduction of the Fund’s net asset value per share.
- The Fund may charge performance fees. An investor may be subject to such fee even if there is a loss in investment capital.
- Investors should not only base on this document alone to make investment decisions and should read the offering documents including the risk factors for further details.
Key investment risks:
- The Fund's investments in equities are subject to equity securities risk due to fluctuation of securities values.
- Investments in the Fund involve general investment, currency, liquidity, hedging, market, economic, political, regulatory, taxation, securities lending related, reverse repurchase transactions related, financial, interest rate and benchmark risks. In extreme market conditions, you may lose your entire investment.
- The Fund may invest in financial derivatives instruments to reduce risk and to manage the Fund more efficiently. This may involve counterparty, liquidity, leverage, volatility, valuation and over-the-counter transaction risks and the Fund may suffer significant losses.
- The Fund's investments are concentrated in the Asia-Pacific property sector and may be more volatile and subject to property securities related risk.
- The directors may at its discretion pay distributions (i) out of gross investment income and net realised/ unrealised capital gains while charging all or part of the fees and expenses to the capital, resulting in an increase in distributable income for the payment of distributions and therefore, the Fund may effectively pay distributions out of capital; and (ii) additionally for sub-class 4 and sub-class 5 of the Fund, out of original capital invested. This amounts to a return or withdrawal of part of an investor's original investment or from any capital gains attributable to that original investment, and may result in an immediate reduction of the Fund’s net asset value per share.
- The Fund may charge performance fees. An investor may be subject to such fee even if there is a loss in investment capital.
- Investors should not only base on this document alone to make investment decisions and should read the offering documents including the risk factors for further details.
Key investment risks:
- The Fund's investments in equities are subject to equity market risk due to fluctuation of securities values.
- Investments in the Fund involve general investment, currency, hedging, economic, political, policy, foreign exchange, liquidity, tax, legal, regulatory, securities financing transactions related and small/ mid-capitalisation companies related risks. In extreme market conditions, you may lose your entire investment.
- The Fund may invest in financial derivatives instruments for investment and efficient portfolio management purposes. This may involve counterparty, liquidity, leverage, volatility, valuation, over-the-counter transaction, credit, currency, index, settlement default and interest risks; and the Fund may suffer total or substantial losses.
- The Fund's investments are concentrated in companies (may include small/ mid capitalization companies, REITs) engaged in or related to the property industry and may be more volatile and are subject to REITs and property related companies risks.
- The Fund may invest in developing markets and involve increased risks.
- The Fund may at its discretion pay dividends (i) pay dividends out of the capital of the Fund, and/ or (ii) pay dividends out of gross income while charging all or part of the fees and expenses to the capital of the Fund, resulting in an increase in distributable income available for the payment of dividends by the Fund and therefore, the Fund may effectively pay dividends out of capital. This may result in an immediate reduction of the Fund’s net asset value per share, and it amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment.
- Investors should not only base on this document alone to make investment decisions and should read the offering documents including the risk factors for further details.
1 minute watch
Key takeaways:
- The extent of the US Federal Reserve’s (the Fed) rate cut isn’t key, what’s key is that the rate-cutting cycle has commenced.
- The magnitude of interest rate hikes over the last few years has now given the Fed the firepower to deal with any future economic challenges.
- While underweighting property equities may have been the right call over the last few years, the asset class now looks well positioned relative to broader equities.