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Working Papers

REITs as an Alternative Investment in Volatile Financial Markets

Working paper #444
Kenneth T. Rosen and Daniel T. Van Dyke

While real estate, unlike conventional stocks and bonds, has not been widely embraced as a stand-alone asset class, this article suggests that investors should consider the perform-ance enhancement and risk reduction potential of REITs in their portfolio construction process. A REIT allocation serves to diversify a stock and bond portfolio while providing competitive rates of return. The income component of REIT returns and the relative con-sistency of earnings based on a highly visible revenue stream make REITs an alternative worth considering in the face of broad equity market volatility. Finally, incorporating or increasing a portfolio’s exposure to REITs when they move to meaningful discounts to underlying net asset value may provide downside protection and the opportunity to cap-ture excess return relative to other forms of real estate investment.

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