Friday, October 29th, 2021

Works well but the downside needs to be managed

There is lots of client interest in alternative asset classes, mainly because bonds no longer provide enough income and because they are structurally vulnerable to inflation. This week, we demonstrate this it is possible to generate superior long-term returns by adding REITs to an actively managed portfolio of equities and bonds. The key messages are (1) that the combined portfolio needs to be actively and systematically traded and (2) that exposure to REITs must be properly constrained in order to avoid the savage drawdowns that are characteristic of this asset class. We also note that US REITs have performed very strongly this year, so now may not be the time to start this strategy.

Thursday, June 27th, 2019

Diversification via REITs actually works and is underused

Over the last 25 years, US REITs have provided successful risk-adjusted diversification opportunities when compared with a 50/50 equity bond portfolio. Comparing them with just an equity or fixed income benchmark understates how well they do when compared with a joint benchmark. They perform far better than the other alternatives we look at – hedge funds, commodities and gold. We think the investors underuse the tactical asset allocation opportunity provided by REITs, as opposed to real estate in physical form.

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