Long-term investors should look to property

21-Dec-2017

By Sarah Kendell

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Investors with a long time horizon should not be discouraged by the rising interest rate environment from investing in global real estate as the asset class was likely to outperform equities in the long term, according to Quay Global Investors.

Speaking to financialobserver, Quay Global Investors principal and portfolio manager Chris Bedingfield said while the fund manager had seen significant success in the retail market over 2017, the prospect of rising rates in the United States currently had some investors spooked.

“Whenever I go and talk to [investors] about real estate I tend to get the reaction that interest rates are going up and they are really worried that real estate will go bad in a rising interest rate environment,” Bedingfield said.

“If you are a long-term investor, which most of the people that come into our fund are, you should not be worried about that – you should see it more as an opportunity.”

He said while interest rate increases were likely to have short-term negative effects on property, the broader economic environment in the US was likely to drive growth in the real estate market.

“A lot of our US real estate companies fell by around 2 per cent when the US tax bill passed the lower house, but the data shows that if you are taking a three to five-year view, [real estate] actually performs pretty well in a rising rate environment,” he said.

“If you think about tax cuts, it means more money in people’s pockets, more jobs, more shopping and more money to go around the system. People may be shying away from real estate to some extent, but when we have an opportunity to explain those long-term benefits they can see past that.”

He added the interest rate factor often kept global equities managers away from real estate, when in fact the asset class tended to outperform the broader equity market in the long term.

“Many global equities funds tend not to own any real estate because they fall for the old trap that it is interest rate sensitive, but the data shows that the long-term returns of real estate globally, in the US and in Australia have outperformed equities,” he said.

“Equity managers hate that because they get paid millions of dollars a year to be superstar stock pickers and yet someone with no financial training buys a house with moderate leverage and destroys the performance of equity managers.

“Our view is if you are a long-term investor and you are not retiring for the next 20 years, real estate outperforms.”

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