STIFEL: REIT ALL - Funds Flows Update. Japanese Flows Strong. Generalist Investors the Key.

Market Commentary/Strategy
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Funds Flows Update. Japanese Flows Strong. Generalist Investors the Key. SLIDES ATTACHED.
We will be hosting our year-to-date Funds Flows Update conference call tomorrow, Wednesday, August 31, at 11AM ET.

SUMMARY

Twice a year, we analyze the various types of funds flows including active and passively managed domestic mutual funds, exchange traded funds as well as Japanese funds flows into U.S. REITs.

We do this to understand the funds flows overall and to project what may happen going forward.

CONCLUSIONS & RECOMMENDATIONS FOR INVESTORS

Surprising strength of Japanese funds flows driven by domestic issues in Japan – appears steady – do not assume this changes

Passive – index funds and ETFs – growing in dollar terms, and in 2016 as a percent of AUM – performance driven

Per Jan. 15 – July 16 funds flows active managers (-$7.1B) likely sold holdings in 50-60 core REITs while passive managers ($10.8B) acquired 150 REITs on a market cap weighted basis

Funds flows coming from yield and stock metrics-oriented investors rather than investors with a NAV bias

Absent any material changes in global debt/equity markets, we expect these trends to continue

CONCLUSIONS & RECOMMENDATIONS FOR REIT MANAGEMENTS

Increase the dividend

Be mindful of ALL valuation metrics

Net asset value metric is important to REIT-dedicated investors, but often ignored by generalist investors

Complexity is the enemy; ‘Simplicity premiums’ are real

Get to know the “ETF portfolio managers” (we jest . . . )

Prices within are as of the close 8/29/16 unless otherwise noted.