THE ROLE OF REITS IN A DOMESTIC AND INTERNATIONAL MIXED PORTFOLIO CONTEXT: SOME EVIDENCE FROM DEVELOPED COUNTRIES

Abstract

The Real Estate Investment Trust (REIT) market has evolved tremendously since its beginnings in the US during the 1960s. Since then, countries around the world have developed their own REIT markets, establishing itself as an asset class to be included in investment portfolios domestic or international. REIT characteristics such as competitive yields and low inherent risks have also aided the asset class to be a staple among investors to include in their portfolios to gain diversification benefits. With asset diversification, the different characteristics of each asset class enable investors to achieve a better risk-return trade-off.

However, as markets change over time, so do the characteristics of each asset class and consequently, the diversification benefits that they initially provided. This brings about a further set of complications when involving REITs from other countries that behave differently according to their respective economies and government regulations as well. Adding on the impact of financial crises, it would be short-sighted to simply assume that REITs would still be able to provide better risk-adjusted performances as well as similar diversification benefits to a portfolio.

Thus, this research paper sets out to analyse the role of REITs regarding their contribution in a portfolio in comparison with other asset classes through their risk adjusted performance. Their diversification benefits would also be examined within a mixed domestic and international portfolio context. With more recent data available, it is hoped that the findings and results of this paper could aid investors in making more informed decisions when constructing their portfolio especially regarding the inclusion of REITs and the advantages they currently bring.