12 MARKET VIEW
Confronted by price pressures not seen in a generation, investors are increasingly seeking assets with proven inflation-busting attributes – such as listed real estate. A real inflation shield
After years of staring down an economic en- vironment dominated by deflation, developed market investors are now being confronted by inflationary pressures not seen in at least a generation. While debate rages over wheth- er today’s heightened inflation will prove to be transitory or permanent, interest rates are already on the rise in many parts of the world. This is leading investors to increasingly seek allocations to areas with a proven ability to successfully nav- igate through such an environment – like listed real estate. Duff & Phelps Investment Management, the US- based global property securities specialist, has long recognised real estate’s qualities as a robust inflation hedge. Since June 2019, Duff & Phelps has been managing the Nordea 1 – Global Real Estate Fund , a diverse portfolio of real estate investment trusts (REITs) from around the world. “During historical periods of rising interest rates and medium-to-high inflation, REITs have gen- erated positive total returns and outperformed equities,” Geoffrey Dybas, co-portfolio manager of the Nordea 1 – Global Real Estate Fund , says. “This is because real estate has two attractive attributes when it comes to hedging against in- flation. Firstly, investors who seek out real estate during these periods recognise REITs can increase cash flows and dividends at a pace that may more than offset higher borrowing costs from rising interest rates and the negative effects of
higher inflation. Additionally, the replacement val- ue of the underlying real estate should increase as land values and input costs rise.” Frank Haggerty, who has led Duff & Phelps’ global real estate securities strategy alongside Dybas for more than a decade, believes the pace and magnitude of interest rate increases will have a significant influence on global economic growth this year. Nevertheless, he continues to see healthy underlying property fundamentals. “Rising interest rates and inflation occur during a rebounding or strengthening economy, which in turn leads to an increasing demand for commercial real estate space,” Haggerty, co-portfolio manager of the Nordea 1 – Global Real Estate Fund , explains.
At a glance ` In previous periods of elevated inflation and rising rates, real estate investment trusts (REITs) have been able to provide positive total returns and outperform equities ` While the magnitude of rate rises will strongly influence global growth this year, many areas of the property market have emerged from the depths of the Covid-19 downturn with healthy underlying fundamentals ` US-based global property securities specialist Duff & Phelps Investment Management has managed the Nordea 1 – Global Real Estate Fund since June 2019
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