Читать книгу The Intelligent REIT Investor Guide - Brad Thomas - Страница 14

Correlations measure how much predictive power the price behavior of one asset class has compared to another. So if we want to predict what effect a 1% rise (or fall) in the S&P 500 will have on an investment category – REITs, stocks, small caps, bonds, and so on – for any particular time period, we look at their relative correlations.

For example, if the correlation of an S&P 500 index mutual fund with the S&P 500 index is perfect (written out as 1.0), then a 2% move in the S&P 500 would predict a 2% move in the index fund as well. On the opposite end of the range, correlations can trend down to −1.0, in which case their movements are completely opposite. And in between is 0.0, which suggests no correlation at all.

This concept is important in the investment world, since it allows financial planners, investment advisers, and individual or institutional investors alike to structure broadly diversified investment portfolios with the objective of having the ups and downs of each asset class offset each other as much as possible. This ideally results in a smooth increase in portfolio values over time, with much less volatility from year to year or even quarter to quarter.

Cohen & Steers Senior Vice President and Global/U.S. Portfolio Manager Laurel Durkay – along with Senior Vice President and U.S. Senior Portfolio Manager Jason Yablon – gave some interesting insights on the subject in their September 2020 publication, “How REITs Benefit Asset Allocation.”

They noted, “REITs have historically served as effective diversifiers, as they tend to react to market conditions differently than other asset classes and businesses, potentially helping to smooth portfolio returns.”

They also wrote that “share aspects of both stocks and bonds – responding to economic growth like equities, but with yields and lease‐based cash flows that give them certain bond‐like qualities.” In addition, they're “subject to real estate cycles based on supply and demand, with the added stability of commercial leases. And they tend to be more sensitive to credit conditions due to the capital‐intensive nature of real estate.”

The co‐authors add that “these distinct performance drivers” have actually resulted in “low long‐term correlations with stocks and bonds. Since 1991, U.S. REITs have had a 0.57 correlation with the S&P 500 and a 0.21 correlation with U.S. bonds (see Figure 1.2). Global REITs have also exhibited diversifying correlations, albeit to a more modest degree, due largely to higher correlations of Asia's real estate market with both [Asian] and U.S. equities.” (See Figure 1.3.)

Accordingly, in markets where stocks are rising sharply, REITs may lag relative to the broad stock market indexes. This happened in 1995, when REIT stocks underperformed comparatively speaking while still providing investors with 15.3% total returns. And it happened again in 1998 and 1999, when their returns were actually negative. Conversely, during many equity bear markets – such as 2000–2001 – lower correlating stocks such as REITs tend to be more stable and may suffer less.

Figure 1.2

Source: Cohen & Steers.

Figure 1.3

Source: Cohen & Steers.

Durkay and Yablon add that “sudden changes in bond yields can have a meaningful influence on short‐term REIT performance. However, such periods tend to be temporary. In the long run, REIT returns are driven primarily by the distinct cash flows and growth profiles of the underlying property markets and the added stability of leases [that provide] the potential diversification benefits of an allocation to real estate.”

Bottom line: Correlations will vary over time, particularly during short time frames. However, because commercial real estate is a distinct asset class with distinct attributes, it's reasonable to expect REITs to maintain fairly low relativity to other asset classes over reasonably long time periods.