REITs' value called into question

The morphing of equity REITs from a niche to a widely accepted and favored asset class has diminished the likelihood of outsized performance going forward, writes Morningstar's Samuel Lee. For decades, REIT yields averaged in the area of 7%, but a "regime shift" about 10 years ago has settled them down closer to 4%.

Further, another benefit of REITs - their lack of correlation with the broader market - has disappeared, says Lee, with their average market beta of 0.5 moving to more than one in the early 2000s, and staying there ever since.

"Anyone who buys REITs on historical risk/return characteristics without considering the fundamental drivers of return and potential changes to market structure is being reckless. A deeper look strongly suggests that REITs' diversification powers are down and so are their expected returns."

Lee has two suggestions for those looking for an inflation hedge: Cash - the Fed typically raises short-term rates inline with increases in inflation - and conventional equities.


From other sites
Comments (5)
  • inthepink
    , contributor
    Comments (5) | Send Message
    I would be very curious to learn what Brad Thomas thinks of this perspective.
    31 Dec 2013, 11:02 AM Reply Like
  • keu4bike
    , contributor
    Comments (469) | Send Message
    What didn't boom in 2003-2006, bust in 07-09, and recover in 11-13?
    31 Dec 2013, 11:18 AM Reply Like
  • wnb1929
    , contributor
    Comments (186) | Send Message
    The usual Morningstar BS advice .
    31 Dec 2013, 10:02 PM Reply Like
  • Archman Investor
    , contributor
    Comments (3383) | Send Message
    Ignore Morningstar!


    Fact: Many, many of their so called 5 star rated stocks and mutual funds lost +85% of their values during the 2008 meltdown. After the carnage they then changed their ratings. LOL.


    The average American knows just as much as these so called Morningstar experts.


    You always want to buy something of value when no one else wants it and sell it when everyone cannot get enough of it. I am not saying Reits cannot fall more, however the creation of cash flow from dividends is fantastic wealth building tool available to anyone with common sense.


    This whole article by the Morningstar analyst is comical at best.
    Many equity Reits have come down a lot.
    He offers no real proof about correlations other than his opinion.
    Offers no proof on the third point.
    Lastly thinks that cash offers some sort of inflation hedge. Yeah if money markets were paying +5% again. LOL.


    This analyst is a clown at best. I am sure he has some ideas to "sell" people though. Just sign up for Morningstar. LOL.
    1 Jan 2014, 11:22 AM Reply Like
  • Jerbear
    , contributor
    Comments (1275) | Send Message


    Well said - Morningstar is highly over rated. Reading Seeking Alpha will give you more insight than these Marketing ploys to buy their product.
    2 Jan 2014, 07:20 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs