CIBC real estate analyst Dean Wilkinson has created a multi-factor quantitative model to produce top picks in the REITs sector,
“REIT fundamentals have always been unique, so quant analysis needs to be tailored to the sector. Our analysis suggests that growth in net asset value, funds from operations, and dividend yield are powerful metrics. In addition, the sector is very sensitive to momentum, while yield is an inverse factor… several factors that REIT fundamental investors consider relevant (i.e., those mentioned above) scored well upon a quantitative review. On the other hand, there was little quantitative support for other commonplace metrics such as leverage, payout ratios, and same-property growth. Our conclusions do not suggest that investors eschew rigorous, multi-faceted analysis—rather that use of quantitative metrics can enhance returns. With the above in hand, we create a multi-factor REIT model for stock selection that appears to drive alpha. It uses NAV growth, dividend growth, FFO growth, current dividend yield, and momentum”
The top quintile of REITs using the model includes:
- Storagevault Canada Inc. (SVI-T)
- Boardwalk REIT (BEI.UN-T)
- BSR REIT (HOM.U-T)
- Mainstreet Equity Corp. (MEQ-T)
- Granite REIT (GRT.UN-T)
- Dream Industrial REIT (DIR.UN-T)
- Nexus REIT (NXR.UN-T)
- Morguard North American Residential REIT (MRG.UN-T)
“CIBC: Multi-factor Quantitative Model Recommendations, 2023″ – (table) Twitter
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BMO senior economist Erik Johnson described a “new era for business bankruptcies” on both sides of the border,
“Canadian business bankruptcies retreated in June after reaching a cycle high last month of 296 (seasonally adjusted). That leaves them roughly 17 per cent above their February 2020 level. Elevated interest rates and labour costs are challenging firms still stuck paying down pandemic -era debt loads. Across industries, retail trade is coming under increased pressure, as the sector saw the most bankruptcies in Q2 in more than a decade —a new era indeed. While bankruptcies remain elevated in accommodation and food services, they fell in June. That lines up with recent survey evidence from the Canadian Survey on Business Conditions suggesting firms in that sector are the most optimistic about near -term sales growth.”
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BofA Securities investment strategist Michael Hartnett summed up the week in his typically blunt (and occasionally cryptic) style,
“The Biggest Picture: between 1st US debt downgrade (Aug’11) & 2nd (Aug’23) US sovereign debt up $18tn to $30tn (CBO predicts $52tn by 2033 …); US govt spend 44% GDP = higher than WW2 peak … ; debt downgrades [does not equal] fiscal discipline; central banks still in business of bailing out Wall St, governments very much in business of bailing out Main St … Tale of the Tape: unloved commodities best performing asset since May 31st US debt ceiling resolution; 2023 catalyst is lack of recession but 2020s secular buy catalyst = supply driven by government policy (lowest US oil inventories since Nov’85 …), protectionism (India rice export ban), & geopolitics (China export restrictions germanium & gallium, Russia/Saudi oil supply, military coup in uranium-rich Niger … )”
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Diversion: “The best cookbooks ever written? Over the years, we’ve asked many chefs to recommend their favourites” – Five Books
Scott Barlow