REITs, across the globe, have performed at comparable levels to broad equity indices. For example, REITs have averaged 11.1%, while the S&P 500 has averaged 9.8% over the last 28 years. They have shown low volatility and recession protection similar to defensive equity stocks, says the report on REITs released by Axis Direct.
REITS have outperformed all broad equity markets be it small cap, large cap or multi-cap over 20-year and above periods and have given comparable returns in 10-year and 15-year periods· Over very long term, investment in REITs can be real wealth creators even better than equities, points out the report.
The report further says that REITs possess characteristics of both debt and equity.
Equity characteristics: Short-term volatility due to market price movement, capital appreciation, growth levers built in lease contracts.
Debt characteristics: Stable dividend yields backed by cash flows from long-term leases (7-9 years) of tenants, high correlation to inflation hence providing inflation protection.
The report also highlighted other benefits of investing in REITs.
- REITs have also shown lower correlation with other asset classes like equity, debt, commodities. Thus, providing an excellent choice for diversification
- REITs provide downside protection during economic downturns as the underlying cash flow is contractually bound by long term leases thereby ensuring a steady dividend yield at all times.