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Building stability in clients’ portfolios. In this exclusive opinion piece for IFA Magazine, Roger Skeldon, Head of Real Estate at TIME Investments, reminds us of the value of using property funds to boost diversification and build portfolio resilience in today’s volatile market conditions.
Investing is, by nature, a highly responsive and reactive business. Times of market stress tend to highlight where genuine resilience still exists.
Periods of calm, turmoil, peace and conflict all follow on and blend into each other, with investors scrambling to stay one step ahead.
Recent sustained periods of geopolitical instability have made this extremely clear. The world’s largest markets and investors have faced unprecedented volatility, with almost no sector or trade unaffected.
Concerningly, increased periods of volatility can dissuade investors from moving at all due to risk fears, potentially making trading less effective and costlier for all.
Yet, as the perception of one asset is negatively affected by global forces, another may become more attractive – revealing previously undervalued attributes, and forcing a new perspective on established systems.
Building stability
Some forms of property investment are potentially uniquely placed to benefit from this realignment. Perhaps fittingly, investments in bricks, mortar, and their foundations may prove to be more resilient than several other asset groups, for a variety of reasons.
To start with, due to recent rate rises, property prices have adjusted for higher levels of interest. Because of this, further conflict-driven increases in interest rates may have less of an impact on property funds’ performance than other fund types. With conflict-related inflation shocks just beginning to hit the UK, this is perhaps a more salient topic than ever.
Recent supply-demand and pricing trends could also bode well for asset performance, even during times of turmoil. Consistent post-COVID increases in the costs of construction, refurbishment, and finance since 2020 have led to a diminished supply of property that supports these sectors and services. In order for the supply to catch up, the relative value, through improving yields or rental growth, needs to increase to make construction viable.
De-risked access
Investors care about where their money is going, and which sectors, companies, and projects they are taking a stake in. As such, one’s portfolio can quickly come to reflect a personal blend of passions, values, and beliefs, as some sectors quickly become preferred over others.
Contrary to what many think, “property” funds consist of a lot more than just property: they allow investors to access a diverse range of these underlying sectors, whether that be tech, healthcare, finance, or any other industry that appeals to the investor.
As any industry’s performance, and therefore the equity market’s, experiences volatility during times of insecurity, this aspect of property funds becomes ever-more advantageous. Property assets that are planned and financed on long-term timelines may be better able to retain their value during turbulent times – offering the opportunity for investors to access their favourite sectors even during times of market instability.
Real drivers of real assets
As with all forms of investment, there are often long-term drivers behind interest in property and real estate assets that may supersede the effects of current events.
In an increasingly digitised, abstract, and complex investment landscape, property investments can represent a welcome break. Real Estate Investment Trusts (REITs) are based on real, tangible sites, and offer the potential for relatively steady, deliverable timelines and returns. Metrics aside, this can offer psychological relief from more high-volatile, intangible asset classes.
Aside from their long-term, reliable structure, the specific projects that property funds are invested in are themselves a driver of resilience and strength. Many property funds are directly invested in projects supporting the essentials of life – supermarkets, student accommodation, offices, and housing – with the understanding that they will always be required and have significant support (both public and private) in coming to fruition.
With a rapidly growing and ageing population, there is an especially strong case to be made for the long-term growth of housing and care real estate, as demand inevitably continues to rise.
Finally, many investors in the UK are now increasingly conscious of building resilience against external shocks, driving interest in homegrown property. As a result of recent turmoil, funds that hold a high proportion of assets in Britain may see increased support.
Building up
These trends can serve as a reminder of the often unexpected outcomes of complex, market-shifting events. Investor sentiment has fundamentally changed, with a distinct focus on countering turmoil, building resilience, and long-term planning.
As a result, recent incidents of uncertainty may be driving growth through a distinctly timeless and steady form of investment – one quietly building foundations for the future in spite of external turmoil. In turbulent markets, investors are increasingly looking past the noise to focus on assets built on underlying trends, driving forces and tangible value. As more portfolios begin to reflect this, we could be looking at a more self-confident property investment landscape than ever before.
Note: the views represented in this article are the author’s alone and do not necessarily represent the views of TIME Investments as an organisation.
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