Wrapping up the 3rd quarter
REITs finished the 3rd quarter up about 1% as a tough September erased most of the gains from July and August. This brings year to date performance of REITs to up roughly 2% including dividends. This is well below the long run historical average returns of REITs.
What may have caused the tepid performance? Let us take a look at the major news items of the quarter;
- Reduction in trade tensions as deals begin to come through
- Economic strength
- Fed continues hiking at a steady yet somewhat slow pace
Early in the 3rd quarter, money flowed into REITs, potentially as a safe haven from trade tensions since REIT fundamentals are largely unaffected. Perhaps the easing of tensions in September caused this same capital to flow back out as market participants grew less fearful of broader market stocks.
Economic strength is unequivocally good for overall REIT fundamentals, but the presence of the strong economy is viewed as an impetus for more Fed hikes. Long term interest rates have not responded much, but the hawkish forecasts from the Fed for more hikes in 4Q18 and 2019 have given some REIT investors cold feet. I view the September drop as a culling of the weak hands who owned REITs for the wrong reasons which, if I’m right, will provide better stability to REIT prices going forward.
From a fundamental risk/reward perspective, I believe REITs are better positioned now than they were going into the quarter.
2CHYP had a decent quarter, beating the MSCI US REIT index slightly. We do not have exact numbers yet as we like to use numbers from a 3rd party source for the sake of verification and Interactive Brokers has a 1-2 day lag on updating for closing prices.
In the coming days and weeks we will be uploading full portfolio analytics to the website which detail the positioning of the portfolio going forward as well as performance and diversification. You can also expect a profile sheet on each company held in 2CHYP which outlines some key info and our reasons for being long each stock.