The benefits of investing in REITs have been further validated by new research concluding that real estate should be considered a core portfolio asset.
Ibbotson Associates, a leading authority on asset allocation based in Chicago, was commissioned by the U.S. National Association of Real Estate Investment Trusts (NAREIT) to analyze how REITs and direct real estate equity interact in diversified investment portfolios.
“Ibbotson found that REITs and direct real estate have similar, though not identical, long-term investment characteristics and create more efficient portfolios when combined as complementary investments,” said NAREIT president and CEO Steven Wechsler, in a news release.
Using annual returns for a 15-year period (1987-2001), Ibbotson determined that expected annual returns were as much as 27 basis points (0.27%) higher in portfolios that included both REITs and direct real estate equity than in portfolios with no real estate allocation.
“There is a growing body of real estate research suggesting that direct real estate investments and publicly traded real estate securities perform well together as complementary investments,” explained Michael Grupe, NAREIT senior vice president for research and investor outreach. “And there are compelling reasons for including both in an institutional portfolio.”
The study’s message for individual investors also is clear. “Real estate should be viewed as a core asset. Pension plans and other institutions have recognized this fact for many years and have capitalized on direct real estate equity and REITs for dividends and diversification,” Grupe explained.
He said REITS remain the best way for the average investor to gain the same benefits. “In fact, adding REITs to a diversified investment portfolio increased the total return by as much as 50 basis points at most risk levels, according to the most recent update of Ibbotson’s earlier analysis using 2002 performance data,” he said.
Our view, supported by Ibbotson’s findings, is that REIT stocks should be part of every investment portfolio—be it individual or institutional,” Wechsler added.
Adding REITs increases portfolio return: study
Real estate should be considered core holding says NAREIT
- By: IE Staff
- September 17, 2003 September 17, 2003
- 10:15