Real estate investment trusts (REITs) have been identified by State Street Global Advisors as the least attractive assets for next year while global equities are the favoured option.
REITs had been hurt this year by the remote working phenomenon led to rent freezes for office tenancies while people opted to shop online rather than in bricks and mortar shops, and malls.
“We continue to favour global equities, credit and gold while becoming sanguine on broad commodities. REITs and core bonds look less attractive,” the firm said in a 2021 outlook.
“REITs continue to score poorly across all indicators we consider and remain our largest underweight within the equity portfolio.”
According to FE Analytics, the global listed property sector had lost 9.2% over one year to 8 December, 2020, while the Australian listed property sector had fared slightly better with losses of 5.4%.
Over the same period, there were only three funds in the two listed property sectors which had returned more than 1%; Freehold Australian Property, Reitway Global Property Portfolio and Spire USA ROC III ATR. The worst-performing fund was AU Property Securities which had lost 60% followed by Newgate Real Estate and Infrastructure which lost 42%.
Performance of the Australian and global listed property sectors over one year to 8 December 2020
Meanwhile, US equities were the largest overweight while State Street had also increased exposure to European and Pacific equities and retained its overweight to emerging markets on the back of improved economic growth and a weaker US dollar.
“Our outlook for equities continues to be cautiously optimistic, and we anticipate broader participation across regions. We still prefer US equities — our highest-conviction position — but now also hold modest overweights to non-US equities. Earnings and sales expectations remain strong for the US, while price momentum continues to help offset weaker valuations,” the firm said.
“To diversify this position, we recently increased our exposure to both European and Pacific equities in addition to increasing our US large cap overweight.”
From a sector perspective, the firm preferred technology and consumer staples stocks, both popular sectors within the US stockmarket, and it had also upgraded its view of communication stocks while downgraded its view of consumer discretionary.
“Consumer staples appears attractive across all of the signals we evaluate, with the exception of momentum where we’ve witnessed some deterioration. Technology ranks above average for all factors except value, and the sector continues to deliver on earnings,” the firm said.
“Consumer discretionary still looks good across momentum and sentiment factors, but its weaker scores for valuation, macro, and quality led us to a move away from the sector. Communication services has seen improving momentum and sentiment data, leading to an upgrade in our view.”
State Street asset allocation
