Inflation has become a greater threat to portfolios than it was in the past decade, rising higher than policy makers anticipated, leaving investors looking for optimal ways to protect their returns and hedge against inflation.
With equities at all-time highs, and bond yields trending up from all-time lows, it’s the ideal time to consider an allocation to global real estate. Global REIT performance hasn’t rebounded like traditional stock markets, and, like other asset classes, large drawdowns have led to higher future return potential.
The Bureau of Labor Statistics’ Consumer Price Index (CPI) increased by 8.5% in March compared to one year prior, marking the fastest annual jump since 1981, eclipsing the previous 40-year record high rate of 7.9% in February, the U.S. Bureau of Labor Statistics reported last week.
Real estate, in its various forms, historically has provided a hedge against inflation and rising interest rates. Since 1972, REITs have delivered attractive returns in a wide range of inflationary environments, with the ability to offset increased costs by pushing rents higher as demand for space grows, according to Virtus.
In periods of moderate inflation, REIT dividends have historically more than compensated for the higher price returns on traditional stocks, while in periods of high inflation, strong income returns offset falling REIT prices, Virtus wrote.
Adding exposure to a diverse array of global real estate markets with strategies such as the Virtus Duff & Phelps Global Real Estate Securities Fund (VGISX) has provided lower correlations and lower beta to traditional stocks, and, as part of a balanced portfolio, has historically lowered risk and enhanced returns, according to Virtus.
By focusing on rental property companies with contractual revenues, the team managing VGISX has amassed a compelling track record of risk-adjusted performance driven by actively managed stock selection.
Active managers have the flexibility to benefit from market dislocations, making active management a key approach to gaining exposure to real estate.
VGISX is actively managed by Geoffrey Dybas and Frank Haggerty, who have been co-PMs since the fund’s inception in 2009. Dybas and Haggerty are supported by an experienced team with exceptional continuity, applying a disciplined investment process focused on owner/operators of high-quality listed real estate.
The average Morningstar Rating of the strategies Dybas and Haggerty currently manage is 4.3 stars, demonstrating impressive risk-adjusted performance.
Dybas and Haggerty average 22 years of portfolio management experience and manage five investment vehicles together, with a Bronze asset-weighted average combined Morningstar Analyst and Quantitative Rating, indicating the potential to deliver positive alpha in aggregate, according to Morningstar.
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