Economic uncertainty has pushed portfolios to the brink, accelerating risk and dampening returns. Span the investment horizon for a path forward
The Bull is Finally Showing Its Age
A trade-induced drag on global manufacturing has markets in disarray. Heightened equity volatility and lower bond yields are forcing investors to find alternative options. This comes as the Fed seeks a last-gasp attempt to pull the economy away from the edge.
* Bloomberg. S&P 500 Total Return Index. 6/30/18-6/30/19. ** Bloomberg. Barclays U.S. Aggregate Total Return Value Index. 6/30/18-6/30/19. *** U.S. 10-year Treasury Yield. 6/30/18-6/30/19. Past performance is not indicative of future results. You cannot invest directly in an index.
A Slowdown in Core Puts the Emphasis on Active Management
It appears that third-party appraisals have lagged the rapid changes in retail, and are only now lowering their valuations to reflect higher cap rates, slower growth, and higher CAPEX requirements.
Cap Rates and Interest Rates
Most private funds use fixed-rate leverage to boost returns. When rates fall, the value of that debt rises, lowering net asset values. Historically, higher building values offset this paradigm; but this is not the case today with historically low cap rates in place.
A New Way Forward
We believe that a healthy consumer will boost sectors such as apartments, hospitals, and senior housing. In our view, value-add strategies may offer a more attractive total return moving forward.
Household Debt to GDP at 15-year Low
St. Louis FRED, courtesy of the International Monetary Fund. U.S. Household Debt to GDP. 1/1/05-1/1/19. Latest information available.
Healthy Consumers May Aide Credit Markets
We believe healthy consumers will help avoid a repeat of 2008. Muted U.S. household debt will keep consumers spending, limiting the defaults that impact assets with a historically consistent income stream.
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