The Hedged REIT Index and Mixed-Asset Portfolios

Abstract

Executive Summary. As international investing becomes more and more popular, studies of mixed-asset portfolios can no longer ignore foreign securities. This study investigates the role of U.S. commercial real estate in mixed-asset portfolios consisting of U.S. common stocks, U.S. bonds and international common equity. Historically, real estate performance has been measured by appraisal-based indices, such as the Russell-NCREIF index. It is well known that these indices suffer from appraisal-smoothing and seasonality problems. Therefore, using the Russell-NCREIF index, for example, in asset allocation decisions might be incorrect because the estimated correlations of real estate with other assets and the estimated volatility of real estate tend to be biased. A hedged equity REIT index, which reflects the returns of equity REITs after the effects of the general stock market are removed from REIT returns, is used in this study to proxy the performance of commercial real estate. The results indicate that investors should diversify into commercial real estate and international equity. For example, an efficient portfolio, which has the same expected return as a traditional portfolio of 60% stocks and 40% bonds, should have 44% of its funds in U.S. commercial real estate, 26% in U.S. common stocks, 19% in international common stocks, and 11% in U.S. bonds.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 17 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.