DIVERSITY IN REITS

Abstract

Portfolio managers and investors all over the world are constantly looking for better investment products to improve their investment performances. Real Estate Investment Trusts (REIT) over the years have proved their worth to be stable and reliable return performers. As such, the global REIT market has risen tremendously since the early 1990s. With over 15 years of strong growth, many forms of REITs and REIT categories or types have emerged and new forms have been proposed to bring the industry forward. The debate as to whether diversified REITs perform better than sector specific REITs is still ongoing. In bid to answer this question, this paper seeks to investigate the risk return performance of a diversified sector REIT as compared to the various sector-specific REITs in the United States (US). The logistic REIT sector is also hypothesized to assess its feasibility as a new REIT category in the US and in Singapore. It is hoped this may give further choices and benefits to the investor and bring the REIT industry forward. The findings from the study show that sector specific REITs outperformed the diversified REITs and the mixed portfolio REITs from year to year. The logistic REIT sector exhibited high risk adjusted returns and outperformed the industrial REITs at various periods from inception dates. This suggests that logistic REITs are very attractive to investors, however its categorization together with industrial REITs only resulted in a drop in return performance. Finally on a local context, despite the relatively lower adjusted returns of the logistic sector compared to the existing Singapore REITs (S-REIT), the inclusion of this sector in the S-REIT market portfolio provides an outward shift in the market efficient frontier.