REIT outperformance lulls investors into false confidence

Last year’s outperformance of the traditionally defensive yield investments, real estate investment trusts (REITs) and infrastructure, could lead to carelessness on the part of investors, according to Jakov Males, head of equities with RCM, an Allianz Global Investors equity manager.

“For many investors, after such a strong year, there’s possibly the potential for a bit of carelessness. To do as well as they did in such a strong market is unusual.

“[Such strong performances] can just as easily revert,” he said.

With significant downside risks expected this year, Males said: “We’re not talking about a 10 or 12 per cent correction, we’re talking about a huge downside”.

For this reason, he indicated that RCM is currently underweight in stocks such as REITs and infrastructure.

He suggested that areas to watch in 2007 include leveraged resources, on the downside, and telecommunications, along with potential opportunities in the corporate equity sector on the back of strong business and growth stock performance.

Males indicated that corporate activity, such as the current plan for a syndicate including Macquarie Bank and Allco to purchase a majority share of flagship Australian airline Qantas, proved that anything is possible in an environment characterised by so much liquidity.

He said that for private equity groups and diversified fund managers, “potential corporate targets are wider than ever”.