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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.
Sep 19, 2024
1 minute watch
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.
Definitions
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.
View transcript
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.
Sep 19, 2024
1 minute watch
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.