Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Mario Saric outlined a new investment strategy for the REIT sector while providing his top picks,
“We went back to 2003 (20 years), separating the top and bottom-five performing REITs in our universe of coverage annually and compared the respective following year total returns ... The Top 5 best performing REITs (as measured by total return) delivered an average of 15.2% total return the following year, outperforming the Canadian REIT Index and the Bottom 5 REITs by an average of 4.2% and 4.4%, respectively. The frequency of outperformance versus the sector is 65%, almost double the 35% frequency of outperformance for the Bottom 5 REITs. As far as 2022 went, the Top 5 REITs (SGR, MRT, HR, CHP, SMU; average total return of 4%) outperformed the Bottom 5 REITs (TCN,AP, D, MI, GRT; 36%) by 40%, below the historical average 55% spread between Top and Bottom. Unsurprisingly, Bottom 5 performers tend to lag when the performance gap between the two is lower than average (i.e., sub-55%), contrary to the results we are seeing so far this year. Overall, when the Bottom 5 outperform…they really outperform (average 26% total return in the following year vs. 19% for Top 5 when they outperform). In any event, the “Bottom 5″ have started 2023 strong, with an average ~10% return, outperforming the “Top 5″ by ~600 bp and the REIT sector by ~300 bp.”
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The BofA Securities popular monthly fund manager survey (FMS) uncovered growing bullishness,
“FMS bottom line: the humans are still bearish but a lot less bearish than in Q4; China & Fed optimism = cash level drops to 5.3%; rotation to EM, EU, cyclicals from pharma, tech, US stocks but no “up-in-equity” positioning…Q1 risk asset “pain trade” remains up… recession concern fading on China reopening; 1-year high in global growth optimism (net -50%), 6-month low in recession fear (51%); China growth expectations at a 17-year high as 91% expect “full reopening” of world’s 2nd largest economy in ‘23…cash 5.3% from 5.9%, biggest drop since Jun’20; #1 tail risk = “inflation stays high” (>4%) & #1 crowded trade = “long US dollar”; FMS investor end-year targets are UST 10-year yield 3.6%, S&P500 3900, bitcoin $15500… Contrarian Trades: long stocks, US stocks, tech vs short bonds, EM stocks, utilities.
“BofA fund manager survey uncovers some bullishness” – (research excerpt) Twitter
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BMO senior economist Robert Kavcic believes the Calgary real estate market is best positioned to weather the housing market correction,
“One notable feature of the ongoing housing correction is that, as always, real estate is local. We see differences across the country, across the province, even within a city, or right down to the neighbourhood level. One spot to point out is Alberta (and specifically Calgary), where prices have held very firm since the BoC started tightening and markets all around began to crack. Alberta’s benchmark price was still up 5.8% y/y in December compared to a 10.2% decline in Ontario. In Calgary, prices haven’t budged at all. Why? • People are moving to Alberta in large numbers, while they are leaving Ontario on an interprovincial basis. • The market in Alberta was already weighed down by a multi-year correction since oil prices fell in 2014. So, that region entered the COVID boom arguably cheap/affordable. Contrast that to Ontario, where rolling waves of froth just got worse during the pandemic. We would continue to argue that Calgary is among the best positioned to weather this correction.”
“BMO says this market best positioned to weather housing correction” – (research excerpt) Twitter
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Diversion: “Industrial espionage: How China sneaks out America’s technology secrets” – BBC
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