Structural headwinds will likely result in continued volatility in global markets characterised by periods of risk-on/risk-off investment thematics, according to Principal Global Investors (Principal).
The trend gives investors and their advisers opportunity within the investment market and asset classes.
With cash rates in Australia at three per cent and fixed income investments at low yields, areas such as property and equities look relatively attractive.
“However, in some instances the more attractively valued opportunities are potentially carrying above average risk. For example, we are finding the lower risk property stocks to be expensive as investors have been in ‘risk-off’ mode,” Principal global portfolio manager of real estate Alastair Gillespie told InvestorDaily.
“However, we believe over the longer term that better value opportunities today are in stocks, which we expect to deliver superior cash flow growth.
“Global real estate investment trusts (REITs) are a sensible part of a balanced portfolio – especially those portfolios where yield is important. This sector currently yields around 3.8 per cent with Australian dividend yields in excess of 5.7 per cent,” he said.
Last week, Principal released a Global Real Estate Securities report, which showed that global real estate stocks produced attractive total returns with an increase of 23.8 per cent for the 12 months ending 30 November 2012.
Fundamental improvement across global real estate markets, low overall interest rates and accommodative monetary policy in key countries served as catalysts for the sector.
The report shows that Asian property stocks have led the way in 2012, with Europe also achieving the index average, but North America lagging.
Australia’s early 2012 decision to adopt monetary policy provided an attractive catalyst for real estate stocks.
“A-REITs have recapitalised their balance sheets and offer attractive valuations and dividend yields,” the company said.
