REITs

Highlights Key Portfolio Updates Synchronized global economic growth is driving real yields higher and boosting equities (Chart 1). Meantime, core inflation remains muted which will ensure that Fed policy stays sufficiently accommodative (Chart 2). Outside of the U.S., monetary tightening…

REITs have marked time year-to-date, but recently operating conditions have downshifted a notch. Three key drivers argue for lightening up exposure on this newly formed S&P GICS1 sector. First, REITs have been unable to materially benefit from the 50bps fall in the 10-year Treasury yield…

Highlights Portfolio Strategy The energy bear market is drawing to a close. Lift exposure to above benchmark. Firming refining operating conditions, at the margin, suggest that it no longer pays to underweight this energy sub-group. Book gains and lift to neutral. Softening profit…

Highlights Portfolio Strategy Operating leverage could surprise on the strong side this year, based on the message from our pricing power and wage growth indicators. REITs are experiencing a playable recovery following the Fed-induced sell-off earlier this year, and overweight positions will…

Highlights Recommended Allocation Quarterly - April 2017…

Highlights Key Portfolio Highlights Improved world economic growth and rising inflation expectations have buoyed global equities (Chart 1). The downside is that financial conditions are tightening and U.S. dollar-based liquidity is contracting, which is growth restrictive (Chart 2). The…

The Treasury bond sell has undermined the REIT sector, but that has created excellent value. Our REIT valuation gauge is one standard deviation below the mean, an excellent starting point for forward relative returns. Now that Treasury yields are also in undervalued territory, the drag from this…

Highlights Portfolio Strategy A battle between tighter monetary conditions and the anticipation of fiscal largesse will be a dominant market theme this year. Our high-conviction equity allocation calls do not require making a major directional global economic bet, or second guessing the Fed's…

The REIT index is oversold and undervalued on a cyclical basis, and fundamentals are improving, as shown in the previous Insight. Contrary to popular perception, relative performance is also depressed from a structural perspective. The chart shows that REIT relative performance is trading well…

The backup in global bond yields has provided investors with an excuse to sell any high yielding sector or group, regardless of valuation. For instance, the short-term relative performance of the S&P REIT index has been highly correlated (inversely) with 10-year Treasury yields. The sell-off…