REITs Lag Broader Market in First Half 2007

(Read more on the debt and equity markets.)

WASHINGTON, DC-For the first time in seven years, REIT returns lagged broader market benchmarks over the first half of 2007, according to market data compiled by the National Association of Real Estate Investment Trusts.

Nareit reports that the FTSE Nareit All REITs Index delivered a -6.96% total return for the first six months of 2007. This trails returns of the S&P 500 (6.96%), the Dow Jones Industrials (7.59%), the Russell 2000 (6.45%) and the Nasdaq Composite (7.78%).

Not all REITs handed in negative numbers: subsectors that outperformed REITs’ overall performance include the lodging/resorts sector, with a total return of 2.97%, and specialty, with a total return of 6.61%.

Michael Grupe, executive vice president, Research and Industry Information, at Nareit, tells GlobeSt.com that investors should take a sanguine view of performance–both in good times and bad. “We don’t know from one year to the next how different investments are going to perform. That is one reason why we always advise investors and organizations that it is essential to take a long term view of portfolio investing and to diversify investments across all opportunities in the equity, bond and real estate markets.”

Also, he adds, investors should diversify geographically around the world as well. “That is an additional source of diversification that can smooth out returns in a portfolio.”

Grupe, though, says that while it is impossible to tell how long the current downturn in performance will last, the bright spot still remains REITs’ strong long-term record.

REITs have surpassed the other major equity market benchmarks in longer-term performance, delivering not just higher returns but lower volatility as well. Compound annual total returns of the FTSE Nareit All REITs Index have outperformed the other equity market benchmarks for the past three-, five-, 10- and 15-year periods ended June 30, Nareit points out.

Also, FTSE Nareit All REITs Index’s Sharpe Ratio, which measures returns relative to volatility, was 10% better than the S&P 500′s Sharpe Ratio over the past 30-year period, and 12% better than the S&P 500′s over the past 20-year period, ended June 30.