Factor investing on listed real estate

Key takeaways:

• Global listed real estate indices offering geographical and property level diversification can be further refined by incorporating additional investment factors
• Quality, Low Volatility, and Momentum factors demonstrate strong return enhancing capability
• Value factor as a single driver demonstrates lower return-driving attribute for listed real estate
• Multi-factor portfolios demonstrate consistency and outperformance over single-factor strategies
• The FTSE EPRA Nareit Comprehensive Factor index with Target Exposure methodology yields enhanced factor diversification and improved long-term return characteristics

Points of differentiation:

• Tailored for listed real estate: Applies FTSE Target Exposure methodology specifically to listed real estate
• Multi-factor advantage: Demonstrates how multi-factor strategies (e.g. Quality, Momentum, Low Volatility) outperform single factor approaches in listed real estate
• Value factor insight: Highlights the underperformance of the Value factor in REITs due to structural inefficiencies and capital model constraints
• Comprehensive index design: Introduces comprehensive indices to reduce the risk of relying on a single factor and improve long-term performance

What does our research mean for investors?

Our research provides a robust framework for enhancing listed real estate portfolios through targeted factor exposures. It highlights the importance of selecting the right combination of factors, particularly Momentum, Quality, and Low Volatility, and cautions against over-reliance on Value in REITs. Investors can use these insights to build more resilient, diversified, and performance-driven real estate strategies.