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Inflation

September 30, 2021

Inflation

It’s been a good long while since the US experienced high inflation. We haven’t even seen inflation top 5% in the last 30 years. We don’t know where inflation is heading next, but whether this recent inflationary trend is transitory or not, it’s in the news, and on people’s minds.

Real Estate Investment Trusts (REITs) own and lease property for the most part. During inflationary times like the current one, when more dollars are chasing less supply, property owners are generally sitting pretty. The economy is growing so they have low vacancies. The valuations of their properties are high. And with prices going up all around, landlords are probably comfortable raising rents. This is all quite painfully obvious to anyone looking to buy or rent a place to live right now.

Stock returns for REITs have been good so far this year, up over 15%. Does that mean REITs are good to hold when inflation is high? Do they help an investor protect the value of their money against erosion? Let’s look at what history says.

Our last real spell of high inflation was the 1970s. The whole decade was tough, and didn’t abate until 1982. The worst 8-year period in history for the Consumer Price Index was 1974-1981, with the worst 3 years 1978-1980, and the worst single year 1979. Over each time period, US REITs outpaced inflation, and the broader equity market as well.

Inflation, REITs, and Equities in the 1970s

19791978-19801974-1981
Consumer Price Index13.5%11.6%9.3%
FTSE NAREIT Equity REITs Index24.4%23.1%16.3%
S&P 500 Index18.4%18.7%7.9%
Investors sometimes assume commodities, gold, and Treasury Inflation-Protected Securities (TIPS) are best for protecting against inflation. The historical record doesn’t quite confirm that. One study compared returns of five asset classes against CPI for rolling six-month periods between 1978 and 2011.1 During periods of high inflation, commodities did win most often, but stocks and REITs were both more effective than TIPs and gold. And when inflation was severe, REITs were the most effective overall.

Inflation Protection Success Rates

REITsCommoditiesStocksTIPSGold
High Inflation (>3.2%)68.9%70.4%60.8%53.8%43.2%
Severe Inflation (>8.6%)65.0%55.0%55.0%27.5%60.0%

Investors might be comforted that REITs have been good at inflation protection in the past.  While history may not repeat itself, holding REITs as inflation hedge seems prudent.

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Represents the percentage of the 399 overlapping six-month periods from monthly data between Jan. 1978 and Aug. 2011 that this selection of five asset classes outperformed the Consumer Price Index:

(1) REITs as measured by the FTSE NAREIT All Equity REITs Index
(2) Commodities as measured by the S&P Goldman Sachs Commodity Index (GSCI)
(3) Stocks, as measured by the S&P 500 Index
(4) TIPS as measured by the Ibbotson Associates synthetic U.S. TIPS series
(5) Gold as measured by the S&P GSCI Gold Index.

All indexes measure total returns (i.e. income plus price appreciation).

1 Case, Bradford and Wachter, Susan M., Inflation and Real Estate Investments (November 29, 2011). U of Penn, Inst for Law & Econ Research Paper No. 11-33, Available at SSRN: https://ssrn.com/abstract=1966058 or http://dx.doi.org/10.2139/ssrn.1966058

Please refer to the Prospectus for full risk disclosures. All data as of September 30, 2021 and subject to change daily.

One cannot invest directly in an index. Index performance is not indicative of the fund’s performance.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services

The FTSE Nareit All Equity REITs Index is a free-float adjusted, market capitalization-weighted index of U.S. equity Real Estate Investment Trusts.

The S&P Goldman Sachs Commodity Index (GSCI) is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities.

The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S.

TIPS are US government- issued bonds that are linked to inflation. The principal of the bond is linked to the Consumer Price Index and the coupon rate is fixed, resulting in both principal and coupons that will move directly with inflation.

The S&P Goldman Sachs Commodity Index (GSCI) Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the commodity exchange (COMEX) gold future.

The Vert Global Sustainable Real Estate Strategy operated as mutual fund from October 31, 2017 and prior to the fund reorganization on December 4, 2023. The investment objectives have not changed.

Investing involves risk. Principal loss is possible. Investors should be aware of the risks involved with investing in a fund concentrating in REITs and real estate securities, such as declines in the value of real estate and increased susceptibility to adverse economic or regulatory developments. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. A REIT’s share price may decline because of adverse developments affecting the real estate industry. REITs may be subject to special tax rules and may not qualify for favorable federal tax treatment which could have adverse tax consequences. The Fund’s focus on sustainability may limit the number of investment opportunities available to the fund and at time the fund may under perform funds that are not subject to similar investment considerations. Diversification does not assure a profit or protect against loss in a declining market.

Please refer to the prospectus for important information about the investment company including investment objectives, risks, charges and expenses which must be considered carefully before investing. You may also obtain a hardcopy of the prospectus by calling 1-844-740-VERT. Read it carefully before investing.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Performance is annualized for periods greater than 1 year. For performance current to the most recent month end please call 1-844-740-VERT. Standardized performance of the Fund is viewable under the Information tab. Click here for standardized performance of the Fund.

Fund holdings and/or sectors are subject to change at any time and are not recommendations to buy or sell any security. Current and future holdings are subject to change. Click here for the Fund’s current top ten holdings.

Basis points are otherwise known as bps or “bips,” are a unit of measure used in finance to describe the percentage change in the value of financial instruments or the rate change in an index.

The Fund is offered only to United States residents, and information on this site is intended only for such persons. Nothing on this web site should be considered a solicitation to buy or an offer to sell shares of the Fund in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction.

ETFs are subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of an ETF’s shares may trade at a premium or discount to its net asset value, an active secondary trading market may not develop or be maintained, or trading may be halted by the exchange in which they trade, which may impact a Fund’s ability to sell its shares. Shares of any ETF are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.

Environmental, social, and governance (ESG) criteria refer to activities that contribute to the business that not quantified in typical financial reporting.

The Vert Global Sustainable Real Estate ETF is distributed by Quasar Distributors, LLC.

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