Industry Updates

BlackRock property ETF outflows show investors fear rates increase

IWDP shed $208m during the week to 12 March

Jamie Gordon

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BlackRock’s developed markets property ETF saw outflows last week as investors remain wary of future interest rate hikes by central banks across western economies.

According to data from Ultumus, the $2.2bn iShares Developed Markets Property Yield UCITS ETF (IWDP) saw $208m outflows in the week to 12 March.

The outflows come despite IWDP posting impressive performance, up 51% over the past year and 7.2% year-to-date.  

Investors appear to have chased the inflation story with bond yields having risen 20 basis points in a day last month, in response to US President Joe Biden submitting his $1.9trn stimulus for review by both US Houses. 

Like bonds, property investors have much to fear from inflation rising, and how this usually translates into further increases in central bank interest rates. 

As rates increase, mortgages become more expensive, which leads many consumers to think twice before committing to borrowing large sums of money. Likewise, more expensive mortgages also affect buyers, with the number of defaulted payments – and ultimately repossessions – directly correlating to mortgage rates. 

In sum, when interest rates rise, the strain on housing supply softens, through a combination of weakening demand and repossessions. 

It is worth noting that since these flows out of IWDP, the Federal Reserve at its latest Federal Open Market Committee (FOMC) meeting has signalled that rate increases will not occur in the US until 2024.  

This is particularly significant for IWDP given that its basket is 56.4% weighted towards US equities. So, while investors may have been spooked by the reflationary backdrop, the FOMC’s words of comfort will hopefully see them settle in IWDP, at least for now. 

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