Real estate well positioned if rates rise
April 2, 2015
Chief Investment Officer – Real Estate Securities and Income Solutions (RESIS)
Real estate well positioned if rates rise
Well, remember what causes rising rates, there are two reasons why rates go up. One is rising GDP, so a good economy and two is pure inflation, without a rising economy. So, in the first case, when GDP is rising and the economy is doing well, we want to expose, and structure our portfolio more toward cyclical companies that can participate in that strong economy. So in this case, we would be buying short duration lease companies — hotels, for example, can reprice their assets every night; self-storage companies on a monthly basis, and apartments on an annual basis.
Conversely, we want to underweight the longer duration lease companies. So, even though health care companies and triple net companies have very stable cash flows, they can’t reprice in a rising rate environment, when GDP is going higher.
Lastly, in terms of inflation with very little growth, that’s sort of similar to what we’re seeing in the emerging markets. So there, there isn’t one particular asset class we’d be buying, but it’s more company-specific and we want to be careful about which companies we buy there. So, we want companies that have termed out their debt, have low-cost debt, very little debt maturities in the short- to intermediate-term. And then, those companies that have good pricing power, where there is low supply and can endure higher inflation.
The views expressed represent the Manager's assessment of the market environment as of April 2015, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.
Carefully consider the Funds' investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds' prospectuses and their summary prospectuses, which may be obtained by visiting delawarefunds.com/literature or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.
IMPORTANT RISK CONSIDERATIONS
Investing involves risk, including the possible loss of principal.
Past performance does not guarantee future results.
Certain statements made here are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). A forward-looking statement is a statement that is not a historical fact and, without limitation, includes any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain words like: "believe," "anticipate," "expect," "estimate," "project," "will," "shall" and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, trends in our businesses, prospective services or products, future performance or financial results, and the outcome of contingencies, such as legal proceedings. The protection afforded by the safe harbor for forward-looking statements provided by the PSLRA are claimed hereunder.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the results contained in the forward-looking statements. Investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this document.
Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors. REIT investments are subject to many of the risks associated with direct real estate ownership, including changes in economic conditions, credit risk, and interest rate fluctuations. A REIT’s fund’s tax status as a regulated investment company could be jeopardized if it holds real estate directly, as a result of defaults, or receives rental income from real estate holdings. “Nondiversified” Funds may allocate more of their net assets to investments in single securities than “diversified” Funds. Resulting adverse effects may subject these Funds to greater risks and volatility.
A triple-net lease refers to a lease agreement in which the tenant is responsible for all of the costs relating to the asset being leased as well as the rent fee applied under the lease. The structure of this type of lease requires the lessee to pay for net real estate taxes on the leased asset, net building insurance and net common area maintenance.
Gross domestic product is a measure of all goods and services produced by a nation in a year.
“Non-diversified” funds may allocate more of their net assets to investments in single securities than “diversified” funds. Resulting adverse effects may subject these funds to greater risks and volatility.
International investments entail risks not ordinarily associated with US investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations. Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.