March 19, 2020

How REITs deliver access to the new economy

The growth and evolution of the REIT sector has given rise to an important new dimension of portfolio diversification. The REIT universe has expanded greatly beyond the property sectors institutional investors traditionally owned—Retail, Office, Residential and Industrial (RORI).

Over the past decade, new property types have been introduced and have grown rapidly. Today, these property types outside of RORI account for half of total market capitalisation. Of special interest are REITs that invest in real estate that supports the rapidly growing technology sectors of the global economy.

In this paper, we explore

  • how holding a diversified portfolio can maximise expected investment returns, while also reducing risks
  • how a portfolio limited to stocks and bonds does not achieve the same diversification potential of a portfolio that includes all available asset classes
  • how portfolios that include income-producing real estate have achieved higher returns with lower risk over the past several decades
  • how investors can achieve additional diversification within their real estate allocation by holding REITs from all property sectors, and how investing in a 21st century real estate completion portfolio with REITs from tech-related property sectors can reduce the overall volatility of portfolio returns