- REITs are a defensive asset class
- REITs have an uncorrelated nature to other asset classes
- REITs have delivered consistent returns over the long term
Olivia Teek, April 2020
With markets in turmoil it’s been easy to panic. Market sentiment has left no asset class unscathed, however it is an important time to highlight an asset class that is most often overlooked.
Global listed property (REITs) is an asset class that has proven itself over the long-term, and it has shown why it should be included in all investors’ portfolios. Global property offers investors a diversified, uncorrelated, income producing asset class that delivers hard currency returns.
REITs are a defensive asset class. They can perform well in both growing and slowing economies. Due to their uncorrelated nature with other asset classes they are an important constituent of any portfolio. Research done over the past few decades has indicated that not including global listed property can negatively impact your overall returns.
The table above shows that including REITs in your portfolio increases returns and at the “sweet spot” of what some research suggests (20%) risk is correspondingly decreased.
Within the asset class itself there are 23 sectors and subsectors that make up the REIT universe. In 2019, the non-traditional sectors such as datacentres as well as the logistics sector generated the highest returns. This contrasted with the retail sector which struggled, as well as the office sector in some parts of the world. Apart from the retail sector, REITs entered 2020 on a path of accelerating growth led by the residential, industrial, and non-traditional REIT sectors, which have been a source of shelter amid the continuing turmoil.
From this it becomes apparent that global listed property is not a homogenous asset class. With 23 sectors as a starting point, all driven by different fundamentals and available in different countries impacted by their own set of economic conditions, a robust investment process allows for finding the best available stocks globally.
The table below includes the annual Total Return for 8 asset classes including among others: Large Caps (light blue), Emerging Markets (red) and REITs (orange) since 2004. It can clearly be seen that REITs produce consistent returns and that, barring 2007/08 are either the top performer or among the top performers of all the asset classes. Emerging Markets too are often at the top, but seemingly right at the bottom in subsequent periods.
The Reitway Global suite of global property products offer investors access to these benefits, along with top quartile performance over an eight-year track record.
The graph below shows the Reitway BCI Global Property Feeder Fund performance versus our index, the GPR 250 REIT World Index, while the tables show our performance versus our (16 local) peers. Both are over a 1-year rolling period.