Displaying items by tag: equities

Two of the most common ways to invest in real estate are through REITs or private real estate. While both have similarities, there are some key differences in terms of structure, liquidity, access, risk, and return. 

REITs are similar to mutual funds in how they are traded and valued. However, they must derive 75% of their income from real estate investments and distribute 90% of taxable income to shareholders. There are a variety of REITs that encompass the whole industry such as retail, commercial real estate, senior housing, multifamily, office, etc. 

Unlike private real estate, there is no end date, and they can operate in perpetuity. Private real estate differs from REITs in that they tend to be pooled investment vehicles that give investors fractional ownership. 

While REITs must abide by strict tax laws, there is no similar requirement for private real estate. Another difference is that private real estate tends to not offer income. Instead, their goal is to pool capital to acquire and develop a property, hold it for seven to ten years, sell it at a profit, and return proceeds to investors with the operators taking a cut. 

Finsum: There are many ways to invest in real estate. Two of the most common are REITs and private real estate. Here are some key differences between both options. 

In an article previewing the first quarter earnings season for the energy sector for Zacks Investment Research, Sheraz Mian discussed the major factors for why analysts are forecasting 2023 earnings to decline by about 21% compared to 2022. 

The major factor is that prices are down by about 25% when compared to last year. Additionally, costs are going up faster than expected, leading to downwards pressure on margins. Given these uncertainties, companies continue to be conservative in terms of CAPEX and optimizing balance sheet health.  

In terms of the outlook for crude oil prices in 2023, the major headwind is weaker demand as economic growth decelerates across the world. Many expect the US economy to stumble into a recession later this year as the Fed keeps rates high to tamp down on inflationary pressures. Additionally, Chinese growth has also been less robust than expected following the end of its Covid policies. 

This is sufficient enough of a headwind to offset bullish impulses from OPEC cutting production, sanctions on Russian oil production, and the US government restocking its depleted crude oil inventories. 

Finsum: Earnings for the energy sector are expected to be down 21% compared to last year as recession concerns dominate. 

In an article for the Financial Times, Derek Brower discussed recent weakness in energy stocks due to increasing worries of a recession despite a recent string of strong earnings reports. This follows a two year rally which was fueled by production cuts in 2020, a better than expected economy, and the war in Ukraine. 

Last year, the energy sector was up more than 50%, while the S&P 500 finished down double-digits. This year in contrast, the S&P 500 has an 8% gain, while the energy sector is down 5%.

According to Wall Street analysts, investors are looking past companies’ strong results due to expectations that recent trouble in the banking sector will translate into reduced economic activity and demand for crude oil. 

Another indication is that dividend yields in energy stocks are nearly double those found in financial stocks and quadruple those of tech stocks. Inflation is proving to be a significant headwind as production costs have increased, eroding margins with lower oil prices. Another is that productivity in the Permian Basin has declined by 30% over the last 2 years, another reason that margin contraction is likely.

Finsum: Following major outperformance in 2022, energy stocks have underperformed so far this year due to increasing recession fears.

Jonathan Brasse discussed a recent white paper from Swiss alternatives group, Partners Group, about why private markets are poised to grow faster than public ones over the next decade in an article for PEREnews.

In essence, Partners Group notes the changing landscape for private markets, and how they are playing a larger role in financing the ‘real economy’. Since 2016, funding on private markets has exceeded that of public markets. Last year, about $400 billion was raised on public markets, while more than $1 trillion was raised in private markets.

Another change is that companies raising on private markets are generally healthier and more profitable than ones listing on public exchanges. These trends are also evident in the real estate market.

Fundraising for real estate in private markets has been steadily growing, while the number of real estate IPOs has dwindled. In terms of future returns, real estate listed on private markets has a better chance to be renewed, repurposed, and transformed, while such expenditures are less common on the public side given the pressures of quarterly earnings and shorter time horizons of public investors. 

Finsum: Private markets have been overtaking public markets in terms of funding. This trend is also happening in real estate markets.

Wavertown, a discretionary fund management firm in the UK, is currently pulling in net inflows of £100mn per month from financial advisors, with 85% going into model portfolios. Waverton attributes the growth in demand for its models due to the structural shift in the advice market towards outsourcing portfolio management. In 2020, the firm also noted an uptick in demand for real assets exposure and absolute return strategies from advisors and clients. Currently, more than 30 percent of assets in the model portfolios are allocated to those asset classes. The firm, which has assets under management of £8.6bn, works with 500 advice firms in the UK and offers a range of model portfolios. The firm is noteworthy for the fact that, unlike many other providers, Waverton does not allocate to external funds. Instead, it invests directly in equities, bonds, real assets, and absolute return funds. The firm started as JO Hambro Investment Management and was owned by Credit Suisse from 2001 to 2013. A private equity-backed buyout took place and the firm then renamed itself Waverton in 2014.

Finsum:A structural shift in portfolio management outsourcing has increased the demand for model portfolios driving inflows for a UK-based Wavertown.