Preparing for inflation? Consider real estate investment trusts
November 30, 2012
Policies enacted by the Federal Reserve and U.S. government in recent years could eventually result in a surge in inflation.
How are you preparing to combat inflation?
While investors who share this concern have a range of options to hedge their investment portfolios against inflation, real estate investment trusts (REITs) may be among the options considered, if suitable, as both rental rates and dividend growth for REITs, although not guaranteed, have historically outpaced inflation.
- Rental rates on REITs are often tied to the Consumer Price Index (CPI), and typically rise with inflation. The difference between rising income levels generated from rental rates and the fixed financing costs of REIT investments contributes to REITs’ ability to potentially generate increased cash flow during inflationary periods (as illustrated in the chart below).
- Dividend growth among REITs has exceeded the inflation rate, or CPI, every year since 1992, except for 2002 and 2009, according to data published by the National Association of Real Estate Investment Trusts (NAREIT) (2011) and SNL Financial (2011), most recent data available. This level of dividend growth could buoy a portfolio during periods of rising inflation, adding to REITs benefits during spikes in inflation.
Chart is for illustrative purposes only, and is not meant to predict actual results.
Sources: NAREIT (2011); SNL Financial (2011), most recent data available.
The U.S. Consumer Price Index is a measure of inflation that is calculated by the U.S. Department of Labor, representing changes in pricing of all goods and services purchased for consumption by urban households.
To learn more about REITs, and to determine whether they may be a suitable consideration for you, contact your financial advisor today or visit our fund center for information about Delaware REIT Fund.
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.
Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors. Technology companies may be subject to severe competition and product obsolescence.
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 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.
“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.