SECTOR PROFILE
Bargain basements
With inflation surging , recession fears rising and UK interest rates expected to hit 6 %, it is little wonder investors are turning to alternative assets as a defensive hedge in their portfolios .
While property and interest rate rises may not be considered the best bedfellows , the asset class is one that fund managers and selectors pick out as offering genuine diversification .
Open-ended property funds have faced liquidity problems in recent years whenever investors have pressed the panic button , causing many to suspend trading . However , Mayank Markanday , manager of the
Liontrust MA Diversified Real Assets fund , says investing in property has many benefits in the current environment , so long as you choose the right vehicle .
“ We get our exposure to property via specialist REITs ( real estate investment trusts ),” says Markanday . “ Not only do we think they provide greater and more reliable inflation hedging , but they also reduce the volatility of owning standalone property exposure .”
Markanday says property is often linked to inflation via the indexation of leases , which can take place annually , on a three-year basis , or at the time of lease renewal . This can result in a lead-lag relationship between how inflation feeds into year-on-year rental growth for a property company and the actual inflation that we see today .
Not a one-way street Yet if inflation coincides with an economic downturn , such as the one we are currently seeing , Markanday says the ability of landlords to negotiate an index-linked rent rise on non hedged property diminishes .
“ In the short-term , macroeconomic factors such as rising rates and slowing economic growth can have a much more meaningful impact on share price valuations than the inflation-protection element of
/ 56 / trustnet . com