Real estate investment trusts (REITs) are an undervalued opportunity for 2021 as it underperformed this year due to fears of a repeat of the Global Financial Crisis (GFC), according to American Century Investments.
Vidya Rajappa, American Century vice president, portfolio manager and head of portfolio management for multi-asset strategies, said the key difference was the US credit market had improved significantly and the leverage in the REIT market was lower.
“In an actively-managed REIT, if we focus on companies with a sort of structural growth tailwind, the sector can benefit,” she said.
“We’re thinking about technology REITs here, because of all the interconnectivity, as well as residential REITs, but staying away from the corporate side of things as well as retail.”
This was in contrast to analysis from State Street who identified REITs as the least attractive asset class for next year.
Rajappa also said there were opportunities in emerging markets, particularly in China, Taiwan and South Korea, but also global small caps.
When it came to whether the COVID-19 recovery had been priced into markets, she said there had been a disconnect between the economy and the market.
“When we think about our [overall] outlook, we think about three things: the path and trajectory of the virus, the vaccine and the dissemination of that, and the monetary/fiscal stimulus,” she said.
“The good news is that the vaccines are around the corner and that’s incredible, and some of the election uncertainty has been diminished, but not all as we still have the run-off election in Georgia for the Senate.
“But the bad news is we are having a resurgence of COVID-19 again, so we fear the re-closing of some of the states and local economies.
“If the vaccines are rolled out without hiccups, then we expect the economy to catch up next year, so we expect a positive return to stocks but maybe not as strong as we’ve seen this year.”
