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Serenity Alternative Investments Blog - Q3 REIT Recap: Value Awakens, Employment Weakens
October 2019
Serenity Alternative Investments Blog - Q3 REIT Recap: Value Awakens, Employment Weakens
- REITs were up 7.6% in Q3 and have returned 26.8% YTD.
- Data centers, after having been left for dead in 2018, have returned over 50% in 2019.
- Defensive positioning has become consensus, but some defensive REITs carry risk exposures that may not be properly discounted by the market.
“Trying to lull us in, before the havoc begins, into a dubious state of serenity” Tool. Fear Inoculum: 7empest
In September the prog-rock band Tool blasted their way back into the music world with the release of a new album “Fear Inoculum.” It had been 13 years since the release of their last record. It is rare for a rock band to make headlines these days, which is why it was shocking to see Fear Inoculum replace Taylor Swifts “Lover” on the top of the Billboard 200 chart the week of its debut. Rock music may not be dead after all…
Similarly, in September value stocks surged out of their downtrend in what has been described as a 6 standard deviation move relative to momentum stocks. This huge reversal flies in the face of prevailing trends; an uptick in an investing style that has under-performed and waned in popularity in recent years. Value investing may not be dead after all…
Investors and music fans alike have to decipher what to make of these recent resurgences. Are they just flashes in the pan, or are they early indications of a change in the overall landscape? Are we on the verge of the triumphant return of rock music and value investing?
It is dangerous to extrapolate single data points into such sweeping narratives, but it is similarly dangerous to completely ignore them. What we can say for sure is that the awakening of value stocks has re-introduced volatility into the performance of common stock selection factors. Those that were blithely long momentum and short value were jarred awake in September, after being lulled into a “dubious state of serenity.”
Are there other trades in the REIT market that could suddenly and violently un-wind in the months to come? We believe so. As economic data has continued to deteriorate, trades many investors consider “defensive” have in our view become riskier.
The beauty of having a model built on a blend of value, momentum, and quality is that it does not implode when two factors move rapidly in opposite directions. Whether value investing returns or not, our model will continue to seek out high quality real estate companies growing the value of their portfolios. And if rock music makes a comeback, after years of waning popularity, we will be happy to fire up the record player and crank the volume up to 11.
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