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Real estate
Going global may benefit U.S. dollar investors
One might think that the diversification benefits of global investing would be minimal, as trade and financial ties bring the world closer together. However, the global economy remains far from synchronized. This divergence may create buying opportunities for investors and enhances the ability to manage risk through diversification. U.S. investors have a unique advantage, as U.S.-based economic events play an outsized role in global financial markets.
The U.S. dollar offers advantages
With the U.S. dollar serving as the global reserve currency, its strength has benefited U.S. investors in times of international market stress. In 2021 and 2022, the world’s major currencies underwent a major re-alignment due to differences in GDP growth, inflation and central bank policies. The euro ended this period 20% higher than its long-term average against the U.S. dollar, the yen ended 27% higher and the pound sterling was up 37%. These excessive currency movements made non-U.S. dollar assets significantly cheaper for U.S. investors.
The scale of the current misalignment is exceptional. The U.S. dollar has not traded at values so high versus the euro since the euro’s post-launch depreciation 20 years ago, its strength against the yen matches levels following the Louvre Accord in the 1980s and the dollar is trading at an all-time high versus the British pound.
This currency advantage may lead to an outsized impact. For example, over the medium term, U.S. investors in UK markets may benefit from falling property values (a buying opportunity) with an additional currency premium of more than 10% as seen in the currency exchange chart.
A city-focused approach may enhance diversification
Historically, major global real estate markets have offered significant diversification benefits to U.S. investors, even versus broad entities like the European Union or Asia. Focusing on key developed markets with low real estate market correlations with the United States – such as the United Kingdom, Germany, Australia and South Korea — may enhance this opportunity.
Nuveen’s approach goes one step further to focus on cities, targeting acquisitions in what we believe are the most vibrant markets. For example, some cities have a very high correlation (Atlanta and Sydney), while other pairings have a low correlation (Atlanta and Berlin, Seoul or Copenhagen).Global investing requires local market knowledge, currency strategies and knowledge of the legal and financial systems. But it can provide important opportunities to manage volatility, hedge risk and enhance return potential.
Diversification is a technique to help reduce risk. It is not guaranteed to protect against loss.
Endnotes
The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature.
Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Performance data shown represents past performance and does not predict or guarantee future results. Investing involves risk; principal loss is possible.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. For term definitions and index descriptions, please access the glossary on nuveen.com. Please note, it is not possible to invest directly in an index.
Important information on risk
All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. Equity investing involves risk. Investments are also subject to political, currency and regulatory risks. These risks may be magnified in emerging markets. Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of income. Investing in municipal bonds involves risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. The value of the portfolio will fluctuate based on the value of the underlying securities. There are special risks associated with investments in high yield bonds, hedging activities and the potential use of leverage. Portfolios that include lower rated municipal bonds, commonly referred to as “high yield” or “junk” bonds, which are considered to be speculative, the credit and investment risk is heightened for the portfolio. Credit ratings are subject to change. AAA, AA, A, and BBB are investment grade ratings; BB, B, CCC/CC/C and D are below-investment grade ratings. Real estate investments are subject to various risks, including fluctuations in property values, higher expenses or lower income than expected, and potential environmental problems and liability. Please consider all risks carefully prior to investing in any particular strategy. A portfolio’s concentration in the real estate sector makes it subject to greater risk and volatility than other portfolios that are more diversified and its value may be substantially affected by economic events in the real estate industry. International investing involves risks, including risks related to foreign currency, limited liquidity particularly where the underlying asset comprises real estate, less government regulation in some jurisdictions, and the possibility of substantial volatility due to adverse political, economic or other developments.
This document provides general tax information. Nuveen is not a tax advisor. Clients should consult their professional advisors before making any tax or investment decisions. This information should not replace a client’s consultation with a professional advisor regarding their tax situation. Neither Nuveen nor any of its affiliates or their employees provide legal or tax advice. Tax rates and IRS regulations are subject to change at any time, which could materially affect the information provided herein.
Nuveen provides investment advisory services through its investment specialists.
This information does not constitute investment research as defined under MiFID.
