How RE diversification can help protect against economic cycles

Oksana Patron

12 September 2023

With the macroeconomic environment indicating a departure from the status quo of the past, investors should focus on real estate assets that not only capitalise on current market trends and offer diversification, but also create a shield against economic cycles.

According to fund portfolio manager Mark Mazzarella from the Dexus Global REIT Fund (DGREIT), in the current environment global diversification can help position portfolios well for challenging market conditions for real estate investment trusts (REIT) investors.

He said that it was all about concentrating exposure on asset classes poised to thrive amidst elevated CPI levels and compelling shifts in real estate and property use.

“We actively seek to insulate an element of the Fund’s returns from the economic cycle by investing in asset classes that have the potential to benefit from elevated levels of inflation and the compelling structural shifts in select types of real estate,” he stressed.

The market uncertainty remained relatively high due to regulatory pressures, governmental and central bank interventions across the globe and, on top of this, evolving social demographics.

“As this scenario plays out in global markets, investments linked to inflation are anticipated to outperform, even with the headline figure stabilising. The potential for governments to flex fiscal policy levers underscores the need to invest in trends that not only accommodate interventions but also ensure global market security,” Mazzarella said.

“In the REIT sector, lessons from the global financial crisis were hard learned, but long remembered. We know from past experiences that we needed to provide a differentiated offering, and the macroeconomic environment we are experiencing supports this.”

DGREIT has an actively managed property securities strategy that invests in a diversified portfolio of REITs listed in North America, Europe and Asia Pacific.

The core focus of the Fund’s investment mandate is in sectors that align with structural and societal trends. These sectors are poised to yield strong rental growth and overall returns, encompassing logistics, data centres, affordable accommodations and life science properties

“This approach is not merely about capitalising on market trends; it is about crafting a shield against economic cycles,” he stressed.

“Clearly, the 2023 rate environment has posed challenges for some traditional REIT investors, however, we continue to believe investors can benefit from the relatively defensive, liquid and real-asset qualities of commercial property over the long-term available via this fund,” Mazzarella said.