Analysis by the Portfolio Construction and Strategy Team suggests that three key investor concerns can be addressed by incorporating REITs in a diversified portfolio.
REITs can potentially benefit from periods of rising inflation expectations and economic growth given they typically provide a reliable and growing stream of income.
Investors looking to diversify income streams may consider an allocation to REITs, which seeks to offer more predictable income and attractive yields while also offering growth potential.
For investors concerned about concentration in US and technology stocks, REITs have the potential to offer diversification when there is volatility in the tech sector.
Market expectations for inflation and economic growth are rising as economies begin to recover post COVID. Inflation remains the topic du jour and probably for good reason. Having been in a downward trend since 1980, falling from 15% to around 2% in the last decade1, inflation is now on the rise. Whether this rise in inflation proves to be transitory or not, it is a new environment relative to the past and requires careful examination of innovative frontiers in diversifying asset classes.
According to the PCS Team, three of the most common concerns faced by investors today can be addressed by incorporating REITs in a diversified portfolio. REITs may be an appropriate solution for investors who are concerned about higher inflation, are seeking income in the extended low interest rate environment, and who may also be looking to diversify away from US growth and technology concentrations in the equity portion of portfolios.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.
Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
The Janus Henderson Horizon Fund (the “Fund”) is a Luxembourg SICAV incorporated on 30 May 1985, managed by Henderson Management S.A. Henderson Management SA may decide to terminate the marketing arrangements of this Collective Investment Scheme in accordance with the appropriate regulation.
Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
The Fund is focused towards particular industries or investment themes and may be heavily impacted by factors such as changes in government regulation, increased price competition, technological advancements and other adverse events.
This Fund may have a particularly concentrated portfolio relative to its investment universe or other funds in its sector. An adverse event impacting even a small number of holdings could create significant volatility or losses for the Fund.
The Fund invests in real estate investment trusts (REITs) and other companies or funds engaged in property investment, which involve risks above those associated with investing directly in property. In particular, REITs may be subject to less strict regulation than the Fund itself and may experience greater volatility than their underlying assets.
The Fund may use derivatives with the aim of reducing risk or managing the portfolio more efficiently. However this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
If the Fund holds assets in currencies other than the base currency of the Fund or you invest in a share class of a different currency to the Fund (unless 'hedged'), the value of your investment may be impacted by changes in exchange rates.
Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
Some or all of the Annual Management Charge and other costs of the Fund may be taken from capital, which may erode capital or reduce potential for capital growth.
The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.