If a week is a long time in football, in financial markets a fiscal quarter can feel like an eternity.
In the first part of this series, we noted the high volatility in the final quarter of 2018 and how some investors might feel the best place for their portfolios was a biscuit tin buried in the backyard.
AREITs updated performance
The last few months might have caused them to reach for a shovel. The local equity market is up 10.9%1 (S&P/ASX 200 Accumulation Index) for the first quarter of the year while the APN AREIT Fund has returned a satisfying 9.8%2 over the period. Volatility, meanwhile, is down by 33.8%1 (S&P/ASX 200 VIX Index).
The trigger was a reset in central bank rhetoric – the RBA included – and the prospects of domestic fiscal stimulus. Equities markets are again on the up-and-up.
Needless to say, the original causes of the volatility late last year have not gone away. The prospect of a US/China trade war hasn’t receded and may well have increased in recent days. Brexit, meanwhile rumbles on, ever more chaotic. Domestically, residential house prices continue to fall and there is still no sign of wages growth.
For investors after high income certainty with lower relative risk, who aren’t prepared to bury their portfolios – and their heads – in the ground, thoughts naturally turn to security.
Regular readers of our research will know that AREITs tend to outperform in periods where market expectations of volatility are high. The strength of this relationship appears to have increased in recent years, suggesting the defensive characteristics of AREITs have been in demand.
In Part 1 we suggested that the AREIT sector total return appears to exceed that of the equities market during periods where market expectations of volatility is relatively high.
Below we have replaced the index benchmark (S&P/ASX 200 AREIT Accumulation Index) with the APN AREIT Fund. The chart below shows the Fund has also outperformed relative to the S&P/ASX 200 Accumulation Index through periods of elevated share price volatility in 2018.