The last four months have been especially testing for investors. Many might now be thinking the best destination for a chunk of their portfolio is a biscuit tin buried in the backyard.
We’d take issue with that. Seasoned investors understand that market volatility is nothing new. Asset prices have gone up, down and sideways throughout history and there’s no chance of that changing. But the relative calm of the last few years does make the recent slumps and rebounds striking.
Why are investors concerned?
Let’s line up the concerns, all of which have been present for years but have recently taken on a more pressing threat.
First, the impact and scale of a US/China trade war seems to be gathering speed. Second, the risks of a no-deal Brexit appear to be growing. Third, questions remain over the monetary policy pathway adopted by central banks. Does it really make sense to raise rates when major economies appear to be slowing?
Locally, we have our own issues. The fallout from the Hayne Royal Commission continues; the residential property market slowdown shows no sign of reversing; and the long hoped-for increase in wages growth is notably absent.
Together, these threats are dialling up the ambiguity. For investors not prepared to bury their portfolios – and their heads – in the ground, thoughts naturally turn something more sedate – investments that offer the possibility of a good night’s sleep.
AREITs – Australian Real Estate Investment Trusts
It is generally held that AREITs come into their own during such times, especially for long-term investors in search of high income certainty and lower relative risk, with a little inflation-protection thrown in.
Now, research conducted by APN suggests they’re right. The share prices of AREITs just don’t jump around as much as ordinary shares. In fact, in periods of volatility they tend to outperform.
Just look at how the AREITs sector (S&P/ASX 200 AREIT Accumulation Index) has performed relative to the domestic equity market (S&P/ASX 200 Accumulation Index) through periods of elevated share price volatility over the past 12 months.