U.S. REITs prove to be one of the more successful investment strategies of the year, outperforming equities, according to NAREIT.
U.S. REITs, a pooled real estate investment product, have emerged as one of the more successful investment strategies of the year, outperforming equity markets, according to data released today by the industry group NAREIT, the National Association of Real Estate Investments.
Total return for the NAREIT All REIT Index rose 4 percent during the second quarter of 2012, according to NAREIT. In comparison, the S&P 500 Index fell 2.75 percent over the same period.
For the first six months of the year, the All REIT Index was up 15.43 percent, compared to a 9.49 percent gain for the S&P 500, according to the association, which also reported a 12.65 percent gain in the index for the 12 months ending June 30th. The S&P 500 was up 5.45 percent year-over-year.
REITs are the most popular among alternative investment strategies used by high net worth investors. According to Michael Grupe, executive vice president of research and investor outreach for NAREIT, the products have the potential to achieve multiple investment strategies, including hedging against inflation and providing income.
“The requirement that REITs pay out nearly all of their taxable income to their shareholders as dividends makes them attractive to investors as a strong generator of income in both up and down market environments,” Grupe said in a statement. “Because real estate rents and values tend to increase in times of rising prices, REITs also appeal to investors who are concerned about hedging their portfolios against the potential of rising inflation.”
The products can help achieve diversification investment strategies, as well. Global REITS can provide access to international real estate markets, while apartment REITS can benefit from a distressed housing market.
The historically strong performance of REITS – an 11 percent return from 1970 to 2011 – makes REITS more of a “core asset” class than an alternative investment, according to Craig Israelson, professor of personal and family finance at Brigham Young University.
“The argument for REITs as an investment is that it typically has a lower correlation to the benchmark asset class,” Israelsen told NAREIT. “What gets lost in that correlation argument is that REITs on their own generate very impressive returns.”
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