Risk On and On. Risk assets enjoyed a smooth upward ride in Fourth Quarter. Investors are learning to ignore short-term political volatility and any suspense surrounding the next chairman of the FOMC or the passage of the Republican tax plan seemed manufactured at best. There was some passing of the baton back and forth between secular growth (FANG stocks) and cyclical (airline, oil stocks, etc.) but, in reality, there was just too much money chasing too few goods as amply demonstrated by the meteoric rise of cryptocurrencies, breathlessly covered by CNBC reporters.
Global property securities produced an 11.4% total return in 2017, outperforming bonds by a wide margin and significantly lagging equities. The synchronized global expansion was the main theme throughout the year. The announcement of U.S. tax reform late in the year raised the prospect of an acceleration of growth in the U.S. that could have trickle affects elsewhere around the globe. While an improved economic outlook is no doubt a positive for real estate over time, it raised the likelihood that interest rates will rise and central banks will continue the process of tighter monetary policy in the coming year. European property securities were the clear winners for the quarter and year as its economic recovery and accommodative central banks lifted markets despite periodic bouts of political uncertainty. The retail sector, out of favor most of the year, got a lift from a flurry of M&A announcements with Unibail-Rodamco’s announced acquisition of Westfield Corporation being the most prominent.