Even with the downturn in the residential housing market, and credit issues that continue to make front page news, as of the end of September REITs have generated total returns including dividends of about 1.8 percent year-to-date (see Investment News article). During the same time the S&P 500 was down 19.3 percent, the Nasdaq was down 21.1 percent, and the DJIA was down 18.2 percent.
The REITs that are outperforming include the self-storage REITs, which are up 33.8%, health care REITs, which have risen 18.5 percent, and apartment REITs, which are up 17.4 percent. Not surprisingly, the worst-performing REITs are those tied to mortgages, with returns down 31 percent.
Other poor performers include the lodging REITs, down 26.7 percent, and the industrial REITs, down 25.4 percent. The wide range in returns continues to illustrate that not all REITs are created equal, in part due to their varying levels of exposure to the current credit issues that are gripping the market.
In fact, if you still find the US market a little too uncertain, looking outside the US may prove beneficial. The Canadian real estate market appears to not have the same level of exposure to the recent US housing-related problems due to their real estate market having a more stringent regulatory structure (see Seeking Alpha article).
Unfortunately, many of the REITs in this market have already had a nice run after being oversold last year, and may provide less current opportunity (see past Trader's Narrative blog post for a listing of Canadian REITs). On the other side of the globe, Northern Trust has recently launched a new Japanese REIT, although it is also not clear if the timing is right given possible credit exposure in the Japanese markets, along with the low liquidity and volatility of the product (see Seeking Alpha articles here and here). Nonetheless, many Japanese REITs do have exposure to commercial real estate, as opposed to residential real estate, making them currently more attractive.
Analysts are also speculating that the market has finally reached rock bottom in Japan and is therefore due for a correction, although many have been making this call for a while now.