SG Hiscock portfolio manager Grant Berry agrees May has been particularly challenging for equity markets and REITs after the first interest rate rise in more than a decade 10 years, along with increases overseas.“Of more significance is the move in bond yields and, primarily, real bond yields,” Mr Berry toldWhile the nominal yields on 10-year bonds moved from 3.1 per cent to peak at 3.
“It is worth reflecting that at the start of this year real bond yields were slightly negative. Higher real bond yields should result in higher real return requirements and asset prices should adjust for this, particularly high multiple groups,” Mr Berry said.“We have factored in higher real bond yields taking a ‘through the cycle’ approach for some time. This means that we have had a strong value bias and more cautious positioning, with a much more resilient portfolio through this period.
“Our portfolio is also significantly more biased to ‘built form’ assets than the sector, having leases more orientated towards rising inflation, with the portfolio well positioned through this changing investment climate.”Some conventions are being turned on their head as inflation bites. Holding established real estate may be the better bet rather than pursuing development pipelines, averting the uncertainty of rising construction costs.
“Shorter term leases are likely to become more popular as long as the rents are at market levels, and you can capture the increase.” edits the property section, which covers all aspects, from residential real estate and housing and construction to commercial property – office, retail, industrial – and major ASX-listed developers and real estate investment trusts.
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