Global listed property produced a strong 14% return in FY19. We are now faced with the risk of a slowing of global growth and the related prospect of lower interest rates. The sector’s attractive 4% dividend yield, with robust growth, still support it as an investment option.
A change in the macro environment is consistent with the sector’s strong returns
Rewind to a year ago, when the outlook for global economic growth tipped interest rate increases. This scenario has changed drastically. The chance that global GDP growth could slow later this year is a concern for central banks who are contemplating rate cuts. This background is consistent with the 14% return for listed property over fiscal 2019 (for the FTSE EPRA/NAREIT Developed Index).
Don’t look at long term performance without looking at relative returns
It is important to consider the longer term performance of the sector, both on an absolute and relative basis. Absolute returns for the sector had been strong in the recovery after the global financial crisis before pausing in 2015. Strong returns in the past 18 months have seen the sector rise by a cumulative 196% over 10 years.
It could be natural for investors to question whether the sector has performed too strong for too long. This possibility is countered by looking at relative returns. The sector’s returns relative to equities have gyrated, before reaching a trough in 2018. Although we have seen the sector rise dramatically on a relative basis for a year and a half, the cumulative returns for the sector relative to equities are roughly the same as where they started a decade ago.
Global Listed Property Cumulative Total Returns Relative to MSCI World Index Cumulative Total Returns
Source: Factset. Data is for FTSE EPRA/NAREIT Developed Index and the MSCI World Index. Data period is for 30/06/2009 to 30/06/2019.
The sector offers an attractive yield premium…
The next chart compares the dividend yield of the sector with the yield offered by 10 year US Treasuries. Global listed property’s yield premium to interest rates had narrowed before fiscal 2019 during a period where the yield for Treasuries rose, expanding the yield differential. The relativity between global listed property and Treasuries has widened during the past year as a result of the sharp rally in the fixed interest asset class. This boosts the sector’s relative attractiveness as an incomebased asset class.
Dividend yield (next 12 months) for Global Listed Property and US 10 year treasury yield
Source: Factset. Data is for FTSE EPRA/NAREIT Developed Index and US 10 year Treasury Yield Index. Data period is for 30/06/2009 and 30/06/2019.
…and dividends are not static but are set to grow
The sector’s rate of forecast dividend growth has been strong in the latest 12 months and dividends are now forecast to grow at a robust 7% in the next 12 months, notably in a weakening economy. This trajectory is driven by growth in contracted rental income streams together with opportunities for positive rental reversions.
Global listed property is still well supported as an option for investors
The global listed property sector has continued on its mostly positive performance journey (on an absolute basis) since the GFC, with a strong year in fiscal 2019. Even after these gains, the sector offers a premium in yield, together with an accelerating rate of dividend growth, underpinning its popularity with investors.
Listed property is a liquid and diversified way of accessing real assets. What else can listed property do for a portfolio? Find out about our approach to investing in the sector here.
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