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Study Finds That Small Caps and Other Asset Classes Can't Match REIT DiversificaPosted by admininvest on: 2005-11-18 14:56:45
Study Finds That Small Caps and Other Asset Classes Can't Match REIT Diversification WASHINGTON--(BUSINESS WIRE)--Nov. 9, 2005--Adding real estate investment trusts (REITs) to a wide selection of diversified portfolios - including those with expanded investment choices - boosted compound annual total returns by 50 to 60 basis points annually when compared with non-REIT portfolios from 1988 through 2004, according to a recent analysis by Ibbotson Associates. Ibbotson, a leading authority on asset allocation, was commissioned by the National Association of Real Estate Investment Trusts(R) (NAREIT(R)) to update its widely recognized work of 2001 by including additional asset classes not previously considered, including small and mid-cap stocks, emerging market stocks, high-yield bonds and investment-grade corporate bonds. "In all cases, REITs were included in the most efficient portfolios of highest returns and lowest risk, suggesting that these other asset classes are not effective substitutes for the diversification power that REIT stocks can provide," explained Michael R. Grupe, NAREIT's senior vice president for research and investment affairs. The Ibbotson analysis uses widely recognized mean-variance optimization to demonstrate that REITs can raise the return and lower the risk of a wide range of multi-asset portfolios. For example, REITs can add significant diversification benefits to today's 401(k) plans, which often include no real estate investment choices. Since 1992, the correlation of equity (property-owning) REIT returns with the returns of other stocks and bonds has declined significantly. "In particular, Ibbotson documented low to moderate correlation of returns from REITs and small-cap stocks, suggesting that small caps are not substitutes for the diversification benefits of REITs," Grupe said. Ibbotson's analysis highlighted two fundamental aspects of REIT returns: high, stable current income and moderate, long-term price appreciation that protects investors against inflation and preserves capital over long investment horizons. Across the spectrum of portfolio risk and return, REITs are used to build the highest return portfolios. Allocating 20 percent to REITs in Ibbotson's sample portfolios both increased the total return and lowered overall risk, according to Grupe. "Equity and fixed-income investors alike can improve their long-term investment performance by adding real estate stocks to their portfolios," he said. "REITs are worth investigating as an addition to many types of diversified portfolios," Grupe concluded. "And Ibbotson also found that small-cap stocks and other asset classes are no substitute for the diversification power and dividends provided by REITs." Ibbotson's groundbreaking 2001 analysis has been hailed by individual and institutional investors alike and referenced in dozens of news stories. As The Motley Fool reported, "... a study by Ibbotson Associates comes in handy. Adding REITs to a portfolio not only increases returns, but it reduces volatility." Copies of a NAREIT brochure highlighting the findings may be purchased by visiting http://estore.nareit.com/source/Orders/index.cfm?section=Orders. The National Association of Real Estate Investment Trusts(R) (NAREIT(R)) is the representative voice for U.S. real estate investment trusts (REITs) and publicly traded real estate companies worldwide. Members are REITs and other businesses that own, operate and finance income-producing real estate, as well as those firms and individuals who advise, study and service those businesses. Visit our Web sites at www.nareit.com and www.investinreits.com. NAREIT does not intend this press release to be a solicitation related to any particular company, nor does it intend to provide investment, legal or tax advice. Investors should consult with their own investment, legal or tax advisers regarding the appropriateness of investing in any of the securities or investment strategies discussed in this publication. Nothing herein should be construed to be an endorsement by NAREIT of any specific company or products or as an offer to sell or a solicitation to buy any security or other financial instrument or to participate in any trading strategy. NAREIT expressly disclaims any liability for the accuracy, timeliness or completeness of data in this publication. Unless otherwise indicated, all data are derived from, and apply only to, publicly traded securities. All values are unaudited and subject to revision. Any investment returns or performance data (past, hypothetical, or otherwise) are not necessarily indicative of future returns or performance. Contacts National Association of Real Estate Investment Trusts Jay Hyde or Rob Valero 202-739-9400 1-800-3NAREIT Open community website http://www.business-business.biz http://www.investment-investment.us http://www.retirement-retirement.com Recommended sites To design your custom retirement plan. http://www.retirement-plan.us For planning an IRA rollover this is the site to review. http://www.ira-rollover.us For professional asset allocation and the wonders it can do. http://www.asset-allocation.us Managers selected to fit your needs. http://www.money-managers.us |
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