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Serenity Alternative Investments Blog - Q2 REIT Report – Warehouses Win And The FED’s Fantasy Land
July 2020
Serenity Alternative Investments Blog - Q2 REIT Report – Warehouses Win And The FED’s Fantasy Land
“The board is set, the pieces are moving” – Gandalf
– Lord of the Rings by JRR Tolkien
Q2 REIT Report – Warehouses win and the Fed’s Fantasy land
• REITs returned 1.3% in Q2 bringing YTD returns to +17.8%
• Property types with economic tailwinds outperformed in Q2, while regional malls and lodging lagged.
• With economic data continuing to deteriorate, we believe defensive positioning is prudent.
• Negative data points in employment and consumer confidence suggest cyclical REITs could be at risk.
After a rollercoaster ride down and then back up over the previous six months, Q2 of 2019 was a less volatile period in the REIT market. While investors have become more comfortable with REITs, the landscape has also been changing, as capital allocators prepare for a back half of the year that promises to be extremely interesting. REITs are once again positioned as an attractive defensive alternative to the S&P 500, with the continued tailwind of falling 10-year treasury yields (now just above 2%).
The general equity market on the other hand, remains volatile and has to walk a dangerous line of fed-dependence into the second half of 2019. The S&P 500 was down 6.3% in May and up 7% in June, indicating that the bears and bulls are grappling for the upper hand as bad economic data increases the odds of a Fed rate cut. With the bulls re-asserting control in June, investors are betting that the Fed can fend off the evil forces of deteriorating economic data once again. From the perspective of Serenity Alternatives, negative data points have made our positioning more cautious, and we are warily eyeing employment and consumer confidence data.
While the Fed may in fact prove to be the white knight the economy needs, our outlook will continue to be data driven. Expectations for fed action are at this point still a fantasy, while poor economic data remains a stubborn reality. Until the data turns meaningfully more positive, we will not be bullish on cyclical REITs based on hope of a fantastic future rate-cut from the fickle Fed.
View the rest of the blog here.