Sailing Through the Storm: REITs and the S&P 500 Amid the 2008 Financial Crisis

Greetings, ProsperousPounds readers! Today we're embarking on a historical journey, one that takes us back to the heart of the 2008-2009 financial crash - or for Millennials the "once in a lifetime event" that we seem to have experienced annually. Our mission? To assess the stock market prices from the start of 2008 to the end of 2009, enabling us to gauge the extent of the damage that this financial calamity unleashed on UK Real Estate Investment Trusts (REITs) and the S&P 500, as well as to understand their recovery trajectory. Read on to discover REITs performance during a recession and find the 2 REITs we analysed that beat the wider market!

Across the Atlantic: S&P 500 SPY ETF

First on our journey is the well-known S&P 500 SPY ETF, an embodiment of the performance of 500 largest companies listed on the US stock exchanges. This benchmark recorded a decline of -20.49% over the two-year period, illustrating the depth of the crisis. The market tremors began in late 2007 and the situation worsened into 2008, climaxing with the collapse of Lehman Brothers in September 2008, which unleashed a sharp descent in stock prices.

The power of American resilience was soon on display. The US federal government across the Bush/Obama eras introduced a significant stimulus package, the Federal Reserve took aggressive measures, and as a result, the recovery wheels were set in motion. Nonetheless, as we closed the chapter on 2009, the S&P 500 was still grappling to regain lost ground, ending this tumultuous period with a substantial net loss. As always there is always a silver lining - if you had the cash on hand it was a great time to buy in for long term S&P 500 investors.

UK's REITs: Navigating Troubled Waters

Bringing our attention back home, we delve into how some UK REITs fared during this storm. SEGRO, currently the largest UK-based REIT by market cap - known for owning and managing modern warehouses and light industrial properties, found itself in the eye of the storm. As the crisis tightened its grip, SEGRO's portfolio was severely hit, resulting in a drastic -58.20% plunge in value.

Two other homegrown REIT giants, Land Securities Group and British Land, also faced the wrath of the crisis. Land Securities Group, a major player in commercial property development and investment, saw a shrinkage in value by -49.27%. British Land, with its portfolio predominantly in retail and office spaces, suffered a decrease of -38.57%. The severe downturn for these REITs can be traced back to their considerable exposure to retail and office space sectors that were severely impacted by the crisis.

The Dark Horses: Derwent London and Big Yellow Group

Amidst the chaos, however, were a few who defied the trend - beating the S&P 500, a tough task. Derwent London, a REIT known for its London-centric and design-led property development, managed a modest increase in value of 0.69%. Their resilience amidst the storm can be attributed to their discerning portfolio selection and tenant base.

Similarly, Big Yellow Group, a self-storage company, also proved its mettle during the crisis. With a relatively mild decline of -11.14%, it weathered the storm better than most. Interestingly, as businesses downsized and individuals faced financial stress through repossessions, the demand for storage space actually increased, serving as a cushion for Big Yellow Group against the recession's worst impacts.

Lessons from the Past, Strategy for the Future

The rollercoaster journey from 2008 to 2009 and the long recovery after served as a stark reminder of the cyclicality of the global economy. The financial storm taught investors who had become used to the good times about the critical importance of portfolio diversification and measured risk management.

The varied performances of these REITs and the S&P 500 highlight the differential effects of a financial crisis across sectors and regions. While some, like SEGRO and Land Securities Group, bore the brunt, others like Derwent London and Big Yellow Group demonstrated admirable resilience.

Such divergence underscores the need for a well-balanced portfolio and a thorough understanding of market dynamics. In the high-stakes game of investments, change is the only constant. As we extract lessons from the past, we're better equipped to chart a more informed path for the future.

As we conclude this trip down memory lane, we're reminded of the timeless wisdom of Warren Buffett, "Be fearful when others are greedy and be greedy when others are fearful." Amid the unpredictable tides of market dynamics, these words resonate louder than ever.

Stay tuned to ProsperousPounds for more insightful deep-dives into the world of finance, investments, and economic history!

Disclaimer: The content provided in this blog post is intended solely for informational purposes. It is not designed to offer financial advice or a definitive guidance on investment strategy. While every effort has been made to ensure the accuracy of the data and information mentioned, ProsperousPounds does not guarantee its correctness or predict future market trends.

Investments involve risk, including potential loss of principal. The historical performance of the companies or investment vehicles mentioned does not guarantee future returns. Readers are advised to conduct their own comprehensive research or seek advice from a certified financial adviser before making any investment decisions.

The opinions expressed in this post are the author's own and do not reflect the view of ProsperousPounds or any of its affiliates. ProsperousPounds does not endorse any companies or investments mentioned in the post. Always remember that investing in securities involves the risk of loss, and you should only invest money that you are prepared to lose.