Diversification With REITS: A 10 Year Perspective

Abstract

The application of Real Estate Investment Trusts (REITs) to stock portfolios as a useful diversification tool has grown in popularity for over two decades. In this study, we examine the risk/return tradeoffs over the 10-year period (2010-2019) under multiple diversification strategies. We compare various portfolios including REITs in combination with International Stocks (IS), Emerging Market Stocks (EMS), Small Cap Stocks (SCS), the S&P500 (S&P), the S&P Growth, the S&P Value, the Russell 3000, the Russell 1000 Growth, and the Russel 1000 Value. The results indicate the S&P Growth and the Russell 1000 Growth combined with REITs suggests the best overall risk reduction inferring correlation is domestic focused. Good results are also found for multi-index blends with the Russell 3000 and the S&P 500.