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Use A-REITs for defense: Morningstar

Taylee Lewis
— 1 minute read

Despite the Australian economy growing increasingly slower than average, A-REITs provided a total return of over 11 per cent in the year end to June. 

In a Morningstar Economic Update, the research house said the A-REIT sector also outperformed the wider equity market for the year to date, with a total return of 5.9 per cent compared with the ASX200’s negative return of 2.8 per cent. 

“Although Australian property yields do not look especially generous from an Australian perspective, they continue to appeal to Asian investors (institutional and individual), and, as recent events have shown, they provide a defensive relative-value option in periods of equity market turbulence,” the report said.

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However, Morningstar warned investors that prices have soared “beyond what would be justified by good trading conditions”. 

There have been notable differences in the performance of listed property globally, with strong year-to-year gains in the UK and the eurozone. 

The UK recorded a gain of 12 per cent, with Germany at 14.8 per cent. 

There were losses in Asia, however, which was down 3.4 per cent. The US also suffered, down 7.1 per cent.

Morningstar pointed out that global REIT stocks will continue to be challenged by rising bond yields in the US and UK over coming months.  

“Valuation concerns are an order of magnitude more acute again for international property: Prices of property shares have been bid up to expensive levels, and the yield on global property has been driven down to around the 3.7 per cent mark (the yield on the EPRA/ NAREIT global index) as investors have chased down yield in a world of near-zero returns from cash and very low returns from bonds,” the report said. 

 

Use A-REITs for defense: Morningstar
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