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IPOs in Mainland China Jump as Global Issuance Plummets

 

 

 

     New listings in China are breaking records even as turbulent markets cast a pall over the global initial-public-offering business.

The disconnect shows how markets in Shanghai and Shenzhen remain relatively shielded from developments elsewhere, bankers say, despite the fact that foreign buyers have increased their investments in mainland China in recent years. IPOs in China raised more than $33.8 billion so far this year, up from more than $30.4 billion a year earlier, according to Dealogic. This year’s tally is the highest figure since at least 2009, according to Dealogic. That is the year when the data provider began giving banks league-table credit for work on onshore listings, after the market was opened to non-Chinese bookrunners.The figures include both primary listings—for companies whose stock wasn’t previously trading anywhere—and secondary listings by companies that already had a presence on another exchange. 

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In contrast, the global dollar value of IPOs fell 71% to more than $90.2 billion over the same period. In Hong Kong, IPO volumes have tumbled 92% from a year ago to nearly $2.2 billion, the lowest point since 2009.

Investors have balked at putting money into new listings globally. Surging inflation, rising interest rates, Russia’s invasion of Ukraine and uncertainty over the trajectory of the Covid-19 pandemic have put pressure on world stock and bond markets. Shares of rapidly growing technology companies—a mainstay of IPO markets in recent years—have been among the hardest hit. While estimates of Chinese growth have fallen—due in part to strict Covid-19 lockdowns—and the benchmark CSI 300 index has fallen about 15% this year, issuance has proven resilient.

High trading volumes also are supportive for the market, bankers say, because this liquidity helps give investors confidence they can trade in and out of newly public stocks rapidly if needed. Another driver is that Chinese companies typically have to undergo a long approval process before listing on a domestic exchange and are therefore eager to join the public markets once they get the go-ahead.

New listings on China’s main boards are usually priced at modest levels, with an unwritten rule capping their valuation at listing.

This year’s biggest mainland listing was the $4.4 billion debut in April of energy giant Cnooc Ltd. The company, whose shares also trade in Hong Kong, was delisted from the New York Stock Exchange last year due to an investment ban introduced by former President Donald Trump.Bankers and lawyers say new listings could also pick up later in the year in Hong Kong, which is traditionally a major destination for offshore listings by mainland Chinese companies. 

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Regulators in Beijing and Washington have stepped up their scrutiny of Chinese companies that are listed in the U.S., or firms that plan to list there. That has increased the appeal of Hong Kong as an alternative destination. A dispute over access to audit papers could lead to Chinese companies being booted off U.S. exchanges as soon as next year.

For deals to resume broadly, however, global markets need to become less volatile. Investors also have a range of concerns about China, including economic growth, technology regulation, Covid-19 policy and U.S.-China audit negotiations. And China has yet to publish finalized rules on offshore listings, which will include Hong Kong.

The city’s exchange operator, Hong Kong Exchanges & Clearing Ltd. , has said it had 170 active applications as of the end of May for IPOs on its main board. International share sales from China “could be the story of the second half,” if those IPOs start to appear, said Udhay Furtado, co-head of Asia-Pacific equity capital markets at Citi.

 

Blackstone, Carlyle Take Different Sides on Oil-and-Gas Investment

Profits from oil-and-gas production have surged as crude prices hover at elevated levels, but volatile returns and a fraught political climate have created a divide among the biggest private-equity firms about whether investing in the sector is worth the headache.

Many public pension funds and endowments that invest in private-equity funds have put pressure on their managers to stop backing producers of fossil fuels and invest more in cleaner sources of energy. The energy market’s boom-and-bust cycles also have translated into poor investment returns over the long term.

That has caused some of the biggest buyout firms to dial back their investment in the sector. Blackstone Inc. has said neither of its energy businesses will make new investments in oil-and-gas exploration and production. Apollo Global Management Inc. forswore new fossil-fuel investments in the $25 billion buyout fund it is in the process of raising.

Investment in the sector has fallen since private-equity firms have chilled on it. The aggregate transaction value of private-equity and venture-backed investments in oil and gas has been just $4.4 billion so far this year, according to data from S&P Global Market Intelligence; at the peak in full-year 2014, it totaled $49.5 billion. Meanwhile, there has been nearly $11 billion worth of investments in renewable-energy sources such as solar and wind so far this year, the data show, putting them on track to surpass oil and gas for the first time.

Carlyle also invests in renewable energy, and Brookfield has one of the biggest private renewables portfolios in the world. Both firms have committed to achieving “net zero” greenhouse-gas emissions across their portfolios by 2050, setting themselves apart from peers such as Blackstone that have set more short-term decarbonization targets.

The risks to that approach abound. It can be difficult to get debt financing for companies that produce fossil fuels because banks are wary of lending to them now. The limited pool of willing buyers—not just among investment firms, but among other oil-and-gas companies, which are consumed with their own energy-transition efforts—means there also are significant hurdles to exiting from such investments. Bankers and private-equity managers say it is nearly impossible to take a fossil-fuel producer public these days.

To have any hope of selling an oil or gas asset at a profit, a firm has to have a plan to make it greener. 

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Which Stocks Do Best During High Inflation?

Investors commonly hear that when inflation surges, it is best to put your money into physical assets that track the jump in prices, with real estate often suggested as the best option. But physical assets, particularly properties, generally can’t be bought as easily or quickly as securities, and acquiring them often entails significant transaction costs.

The second-best option is usually to rebalance your stock portfolio to shift it into industries that do well in an inflationary environment. So, when inflation surges, what industries do best for a stock portfolio? 

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To sum up: Shares in real-estate investment trusts or companies in the real-estate industry are not the best option. Stocks in the materials and energy industries outperform all others by a long shot, according to the findings of a study  conducted with research assistants.
Gathered data on the returns for all stocks listed on the New York Stock Exchange or Nasdaq over the past 50 years   then examined the course of the consumer-price index over those years and found three spikes in prices during which the inflation rate doubled in less than 24 months: March 1973 to May 1975, April 1978 to September 1980, and February 2021 to March 2022.
The median real-estate stock delivered a 3.32% annualized return over the three periods, far below the annualized returns of 18% for the median energy company and 16.81% for the median materials company.On the opposite end of the spectrum, healthcare (including pharmaceuticals) performed the worst, with an annualized return of minus 8.44%, followed by consumer staples at minus 6.73%, consumer discretionary at minus 5.71%, utilities at minus 4% and technology at minus 3.64%.

The negative results for healthcare, tech and consumer discretionary are understandable, because these are interest-rate-sensitive industries. But the results for consumer staples and utilities might surprise some investors, because these are often thought of as safe assets in rough times. 

High Energy Prices Challenge Wall Street’s Green Shift

Wall Street arranged more bonds and loans for clean-energy projects than oil-and-gas companies in the first quarter. The shift could be short-lived amid the push to boost fossil-fuel supplies after Russia’s invasion of Ukraine.

Banks underwrote more than $100 billion of bonds and loans for clean-energy uses in the first quarter and arranged $95 billion in borrowing for oil-and-gas firms. The pace of underwriting slowed in both categories from last year, when total oil-and-gas and green debt issued in each area totaled about $570 billion.

The shift toward more green-debt underwriting has been dramatic in recent years. The ratio of oil-and-gas to green debt underwritten fell to 0.9 in the first quarter from 1 last year. In 2018, four times as much money was raised by banks for fossil fuels than for clean-energy uses. 

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Debt underwriting involves finding buyers and backstopping prices when necessary. It is one of the main ways banks help companies and governments raise money. The data don’t include direct lending, equity underwriting or other borrowing linked to sustainability measures.

While the overall industry did more green underwriting in the quarter, some banks reversed course. Citigroup Inc. arranged more green debt than fossil-fuel debt for the first time last year. In the first quarter, it did more oil-and-gas debt. Other banks that underwrote more oil-and-gas than green debt and also saw the ratio increase in the first quarter include Wells Fargo & Co. , Mizuho Financial Group Inc. and Société Générale SA.  

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Banks say they can’t transition away from fossil fuels too quickly given limitations on clean-energy capacity and that their lending activity reflects broader industry trends. Oil and natural-gas prices have surged, turbocharged by the war in Ukraine, improving the outlook for many producers and prompting calls for increased output. Meanwhile, supply-chain disruptions have pushed up costs and delayed many clean-energy projects. Many financiers also say they must work with companies to bring down emissions rather than divesting from high-emitting industries.

JPMorgan Chase & Co. , the largest U.S. bank and biggest energy-sector financier last year, cut the ratio of oil-and-gas to green-debt underwriting to 1.2 last year from 10 in 2018. The ratio stayed at that level in the first quarter, again indicating more fossil-fuel activity than the broader industry. JPMorgan last year pledged oil-and-gas companies in its portfolio would substantially reduce operational carbon intensity—emissions per unit of output—by 2030.

Analysts say carbon-intensity targets are less aggressive than outright emissions-reduction figures because carbon intensity can decline while overall emissions increase.

Citigroup in January said it was targeting a large absolute drop in financed energy-sector emissions by 2030, a move that analysts said surpassed similar pledges by its peers. Its ratio of oil-and-gas to green-debt underwriting rose to 1.4 in the first quarter from nearly 1 last year. Citigroup Chief Executive Jane Fraser spoke at last year’s Glasgow global summit about the need to scale climate solutions and has said the bank might have to cut off clients to meet its climate targets.

Wells Fargo arranges much more fossil-fuel debt than green debt, with a ratio of 6.7 in the first quarter and 6.3 last year. That is down from 68 in 2018. The San Francisco-based lender recently joined other banks in saying it would cut its net emissions to zero by 2050.

Among the energy companies that raised billions in debt through large banks in the first quarter were commodity traders Vitol SA and Trafigura Pte. Ltd. and oil-and-gas producer ConocoPhillips.

Many environmentalists are also concerned that the pace of clean-energy financing is slowing, delaying the spending needed to reach the world’s climate goals and reduce global reliance on oil and gas. Biotech firm Amgen Inc. and Honda Motor Co. were among those that raised green bonds to reduce emissions last quarter, but the total amount raised was well below last year’s pace.

Some analysts say between five and 10 times last year’s total in green bonds and loans is needed annually by the middle of the decade to accelerate the energy transition.

 

 

 

 

Investors Face a World Where Stocks No Longer Reign

Investors are moving their money out of stocks and into ultrasafe assets that had largely been unloved for the past decade—such as cash, Treasury bills, certificates of deposit and money-market funds. Investors put $51.4 billion in global money-market funds in the week through April 27, the most for a week since October, according to Refinitiv Lipper. During the entire month of April they yanked $19.2 billion out of stock exchange-traded funds—the biggest outflows since 2019, according to Morningstar Inc.
If stocks were still rising the way they did the past several years, these alternatives would likely be of little interest to investors. After all, the S&P 500 delivered annualized returns of 17% over the past decade. But between investor worries about tightening monetary policy, inflation, and Covid-19 lockdowns and supply-chain disruptions slowing global growth, the stock market has had an indisputably grim year.
The S&P 500 is now down 16% in 2022—on course to deliver its worst return since 2008. Even bonds, which have been hit by their own brutal selloff, have managed to beat the stock market so far this year. The Bloomberg U.S. Aggregate Bond Index, which includes Treasurys, mortgage-backed securities and investment-grade corporate debt, has returned negative 9.4% in 2022.
This time around, the market hasn’t gotten the same lift. The S&P 500 posted its sixth consecutive week of losses Friday, a streak last matched in length during the height of the 2011 European debt crisis. Many investors see the tumult as the consequence of the Fed finally winding down easy money policies that sent shares soaring and encouraged people to keep putting money into the stock market because they felt they had no other palatable choices.
Stock investors faced with rising interest rates and falling stocks have historically been rewarded by sticking it out in the market. For instance, the Fed raised interest rates in 1986 and 1987 to try to fight inflation. After stocks careened on Black Monday, the central bank immediately lowered rates again, helping stocks go on to produce double-digit percentage returns the following two years.

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More recently, stocks fell in 2018 after the Fed raised rates and indicated it would continue to do so the following year. The central bank then wound up cutting rates three times—effectively taking away its 2018 rate increases—to try to give the U.S. economy a buffer from the trade war and slowing global growth. The S&P 500 once again rallied, rewarding investors with double-digit percentage returns in 2019, 2020 and 2021. Returns on cash and cash-like investments trailed well behind stocks over that period.
In one scenario, the Fed pulls off what’s called a soft landing: cooling down the economy enough to get inflation back near its 2% target, but avoiding actually tipping the economy into a recession. That might help make stocks attractive again since corporate profits would remain strong, something that should encourage investors to place bets on publicly traded companies.
In a less upbeat scenario, the Fed’s interest-rate increases wind up putting the economy at the risk of recession. Bond yields should then fall, since they typically go down when investors are less optimistic about the economy and go up when they see higher growth and inflation in the future.

New Lithium-Extraction Technology Attracts Investors

Lithium is a key component of rechargeable batteries, and developing domestic supply is seen as an important step in a broad push for the U.S. to transition to alternative energy sources. In February, the Biden administration unveiled plans to invest $2.9 billion to boost production of advanced batteries and strengthen the battery supply chain in the U.S., including the development of domestic supplies of lithium. Last month President Biden also invoked the Defense Protection Act to increase production of battery metals.

But newer, still-experimental lithium production and extraction methods that could help increase supplies, while attracting investors for their potential to speed up production and reduce the environmental impact compared with most current lithium-extraction methods, are so far unproven at large scale.

Current methods of lithium production mostly involve extracting the lightweight metal from hard rock or pumping the salty brines that contain lithium out of the ground into vast ponds where evaporation separates it from other elements. Mining companies in Chile have used this environmentally hazardous practice for decades. It takes about 18 months to two years to produce lithium from a brine using ponds and several years to build such projects.

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The new methods, known collectively as direct lithium extraction, or DLE, have been shown to be faster than traditional methods and more efficient. While traditional methods yield about 40% to 50% of the lithium present in a mined resource, processes using DLE can extract 75% to 90%, companies behind the technologies say. Many DLE technologies use a chemical process or other methods to isolate lithium.

That means more lithium can be produced and made commercially available more quickly—at a time when demand for lithium is sending prices to all-time highs, while analysts are projecting shortages that could slow production of electric cars.

In Nevada, where the ground is rich with lithium brines, a wave of lithium prospectors have taken out claims for potential projects in the past year. Many conventional lithium-extraction efforts, however, face opposition from environmentalists and permitting delays.

The question is whether DLE is ready to make a major difference. Many DLE technologies that work well in a laboratory often run into trouble in the field, experts say. Many of the technologies would likely still require large amounts of water and power to run the devices on a large scale.

DLE is currently being commercially used only by the Philadelphia-based lithium miner and processor Livent Corp. alongside its other brine-extraction processes in Argentina, and by companies in China. The DLE component of Livent’s Argentina project is small and isn’t producing lithium at a scale that would indicate a technological breakthrough, analysts say. And experts say there isn’t enough transparency about the DLE technology being used in China to know how successful it is.

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Funds seek Yuan offerings

Some international private-equity firms investing in China are choosing to denominate new funds in the country’s local currency, going against a wider slowdown in global demand for bets on Chinese startups.  The appetite for allocating capital to funds focused on China has waned over the past year, the result of factors including tensions between Beijing and Washington, higher U.S. interest rates and a prolonged crackdown on China’s once-hot internet sector.  

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U.S. dollar capital raised by China-focused private-equity funds plunged more than 80% to just under $23 billion in 2022, the lowest amount raised since 2010, according to data from Preqin Pro. Yuan-denominated funds have held up much better. The equivalent of around $455 billion was raised by yuan funds in 2022, just 4% down on the year before.
These yuan funds are getting demand from a mix of local and international investors.
Many Chinese private investment firms that previously relied heavily on raising capital from the likes of U.S. pension and endowment funds have seen a drop in demand in the past year. Only about half of the investors in private-equity funds are committing to follow-on fundraising rounds. Another benefit from investing in Chinese consumer companies in yuan is that the majority of them end up seeking listings in the domestic A-share market, which is traded in yuan, he added.
The choice of the yuan does have challenges. Government-backed funds, a crucial source of capital, often demand that money managers push their portfolio companies to invest in the local economy—a practice known locally as “reverse investment.” It is typically agreed before any commitment to fundraising. They also often want to directly invest in companies alongside the private-equity funds, rather than accepting a role only as a passive investor in the funds.

Why HealthCare?

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Significant scrutiny and attention have been given to genome-sequencing costs and how they are calculated since the beginning of the field of genomics in the late 1980s. For example, NHGRI has carefully tracked costs per genome at its funded 'genome sequencing centers' for many years (see Figure 1). With the growing scale of human genetics studies and the increasing number of clinical applications for genome sequencing, even greater attention is being paid to understanding the underlying costs of generating a human genome sequence.
A genome consists of all of the DNA contained in a cell's nucleus. DNA is composed of four chemical building blocks or "bases" (for simplicity, abbreviated G, A, T, and C), with the biological information encoded within DNA determined by the order of those bases. Diploid organisms, like humans and all other mammals, contain duplicate copies of almost all of their DNA (i.e., pairs of chromosomes; with one chromosome of each pair inherited from each parent). The size of an organism's genome is generally considered to be the total number of bases in one representative copy of its nuclear DNA. In the case of diploid organisms (like humans), that corresponds to the sum of the sizes of one copy of each chromosome pair. 

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Demographic shifts and societal changes are intensifying pressures on health systems and demanding new directions in the delivery of healthcare. We are getting older. Ageing populations in both emerging and developed nations are driving up the demand for healthcare.

According to the United Nations, the world’s population is expected to increase by one billion people by 2025. Of that billion, 300 million will be people aged 65 or older, as life expectancy around the globe continues to rise. Additional healthcare resources and service innovation is needed globally to deliver the long-term care and chronic disease management services required by a rapidly increasing senior population. 

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At the same time, developing countries are experiencing significant growth in their middle class. The Brookings Institute estimates 65% of the global population will be middle class by 2030. Accelerated urbanisation and access to middle-class comforts are promoting sedentary lifestyle changes that will inevitably lead to greater incidence of obesity, diabetes and other costly health conditions.

Driven in part by demographic changes, a new paradigm of public and private sector collaboration is developing to transform healthcare financing and delivery.

A rising middle class will fuel increasing demand for more health options. Looking forward, more effective partnerships are needed between the public and private sectors to meet these expectations. Collaborations that in the past may have seemed unlikely will become commonplace. Changing technology and consumer needs will inspire partnership innovations that cut through conventional thinking.

As the population grows, technological innovations in mobile health (mHealth) will advance cost-effective health solutions. Technology and analytics are ushering in new ways of promoting wellness, preventing disease and providing patient-centric care. These advances are exciting tools for providers, private payers and governments alike, as they bring greater precision to predicting patient behaviour and detecting and diagnosing diseases.

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Healthcare is undergoing dramatic globalization. Throughout history, the sick and lame have embarked on pilgrimages to find cures. In the past, this was primarily to access facilities or technologies unavailable at home. Now travel for medical treatment has expanded enormously and many travel from developed countries to low- or middle-income countries, often to avoid high costs or long delays. Travel to another country for medical treatment has been called “medical tourism” and “cross-border healthcare” [1, 2]. Globalization of medical care is a multi-billion-dollar phenomenon, associated with economic, cultural, ethical, legal, and health consequences. A growing literature describes its dimensions and complexities [3–6]. This paper will focus on infectious disease implications.

Spending on health is growing faster than the rest of the global economy, accounting for 10% of global gross domestic product (GDP). A new report on global health expenditure from the World Health Organization (WHO) reveals a swift upward trajectory of global health spending, which is particularly noticeable in low- and middle-income countries where health spending is growing on average 6% annually compared with 4% in high-income countries. 

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The healthcare sector is made up of many different industries—from pharmaceuticals and devices to health insurers and hospitals—and each has different dynamics. Investments in this sector are affected by many variables, including positive trends related to demographics and negative trends related to reimbursement.1 Healthcare investing requires a multifaceted approach to understand the underlying drivers. Investors can profit from investments in both the overall sector and/or its industries. This article will detail the differences among the various healthcare industries and which metrics investors should follow before making an investment.

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Trends in the Healthcare Sector

When deciding on a healthcare company in which to invest, keep the following prevalent trends in mind. Changes to or continuations of these trends can have implications for a variety of areas within the healthcare sector.

-The aging population and the baby boomers
-People living longer with chronic disease
-Obesity and diabetes epidemics
-Technological advances
-The global reach of disease
-personalized medicine
A company's choice can affect its risk and profitability. 

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Underwriting skills drive health insurers' profitability. The better the underwriting, the lower the medical costs relative to the premium (or payment) received from the purchasing company.15 The key ratio that health insurers report is the medical cost ratio. This ratio is akin to the operating-profit ratio and should be looked at as a trend analysis. The medical loss ratio is also an important ratio and is similar to the gross margin, only in reverse (lower ratios are better). In addition, you want to invest in a company that has a conservative, trustworthy management because there are often timing mismatches between when medical services are consumed and when the bills are paid.

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Shift to Mined vs. Man-Made Graphite Raises Shortage Risk for EVs

 

 

Mining companies are ramping up supplies of critical minerals for rechargeable batteries such as lithium, cobalt and nickel. Graphite, a key battery component, has largely been overlooked.  Some of the world’s biggest auto and battery makers and the U.S. government are racing to secure graphite supplies amid looming signs of shortages of the mineral suitable for batteries. So far graphite prices haven't reflected the tight supply,

Lithium

 

European real estate market

Diversification is a key part of investing as it reduces the volatility and risk of loss in an investment portfolio over the long run. Having a diversified investment portfolio generally yields higher risk-adjusted returns in the long run compared to a non-diversified portfolio, and is perhaps the most important component of reaching long-range financial goals whilst minimising risk.
Real Estate provides investors with the ideal opportunity to diversify their assets, due to the asset class’s low correlation with conventional equity investments. Furthermore, there are a myriad number of ways in which assets can be diversified within real estate itself, such as by sector, geography, or strategy.
Diversification through real estate can reduce risk by 60% - 94% across the United States and European markets. 

Diversification

One of the most widely used and recognised indices of listed real estate is the FTSE EPRA Nareit Global Real Estate Index which constitutes almost 500 real estate companies and with a combined free float value of over EUR 1.4 trillion. The FTSE EPRA Nareit Developed Europe Index covers 107 companies with a combined value of over EUR 200 billion.
The total value of listed real estate in across the global markets, covered by FTSE, EPRA, and Nareit is estimated to have a total value of close to EUR 3 trillion.

Listed Real Estate in Europe

Pension fund real estate investments are typically passive investments made through real estate investment trusts (REITs) or private equity pools. Some pension funds run real estate development departments to participate directly in the acquisition, development, or management of properties.
Long-term investments are in commercial real estate, such as office buildings, industrial parks, apartments, or retail complexes. The goal is to create a portfolio of properties that combine equity appreciation with a rising stream of inflation-adjusted income to balance the ups and downs of the markets. 

Pension funds

Real estate investing can be a very challenging experience but it can also be very rewarding. It takes some experience, not to mention a lot of patience, time, and money. After all, you can't just invest your money and expect to start profiting immediately.
The average annual returns in long-term real estate investing vary based on a number of factors—by the area of concentration in the sector.

Returns European funds

Returns dutch funds

According to the National Council of Real Estate Investment Fiduciaries (NCREIF), as of Q1 2021 the average 25-year return for private commercial real estate properties held for investment purposes slightly outperformed the S&P 500 Index, with average annualized returns of 10.3% and 9.6%, respectively. Residential and diversified real estate investments also averaged returns of 10.3%.

Returns comparison

The real estate sector is divided into two main categories—residential and commercial real estate. Within either category, there are vast and varied opportunities for investors, such as raw land, individual homes, apartment buildings, and large commercial office buildings or shopping complexes. Investors can choose to invest directly in residential or commercial real estate or invest in real estate company stocks or bonds.

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