A report issued last year called the “Historical Returns of the Market Portfolio,” looked at the performance of worldwide financial assets for the modern era, from 1960 to 2015. The researchers Laurens Swinkels of Erasmus University, Rotterdam, Trevin Lam of Rabobank, and Ronald Doeswijk, found that during the observed time frame global stocks returned 5.45% a year, non-government bonds returned 3.5% a year, and government bonds returned 3.06% a year. But, shockingly the best assets class from 1960 until 2015 was actually real-estate investment companies and trusts, which produced a yearly return of 6.43%.
The difference of a Real-Estate Investment Trust portfolio and a global equity portfolio for a period of 20 years would mean the REIT portfolio would have beaten the global stock portfolio by nearly 30%. Furthermore, the REITs performed very well when looked at on a per decade basis. The 1990s was the only decade in which REITs didn’t perform, as returns were just above zero. But that decade following the 1980s when things were booming. This all while stocks performed poorly in the 1970s, which just barely producing positive returns, and from 2000 until 2010 when global stock returns were actually negative.
In addition to performing better than stocks on a per-decade basis, real-estate’s worst year was never as bad as stocks worst year but its best year was better than global stocks best year. More so, it had fewer years in which it fell more than 10% than the number of years in which stocks fell 10% or more. Continue reading "REIT ETFs May Be Better Than Equity ETFs"→
US Housing data from October came in at their highest levels in ten years. High demand and limited supply are pushing housing prices higher this year. In August, housing prices in Denver, Miami, Houston and the Washington D.C. metro area hit levels that most consider being overvalued.
Furthermore, now reports indicate that home prices on the lower end of the spectrum are rising faster than those in the middle and high end. Acute shortages of housing, especially in the low end of the market is causing prices in that tier to increase much faster than those in the middle or high-end tier.
Many believe home prices are increasing because millennials are finally entering the housing market, which would certainly make sense when you consider the low end of the market, or starter homes, currently have the most demand.
Prices will increase until either supply, as in the number of homes available for purchase, catches up with demand or prices hit a point that reduces demand.
It is more likely the latter will occur first, due to the time required to build more homes and especially when we consider what is likely to continue happening with interest rates. The Federal Reserve has made it clear they plan to continue increasing interest rates for the next few years, and as rates rise, the cost of homeownership follows.
As the market takes on more of a bearish mentality, investors look for alternative stocks to take shelter in. While cyclical sectors begin to underperform as the global economy flirts with a recessionary phase, defensive sectors start to look more attractive. While consumer staples often perform well during difficult times, one sector has all but faded from more investors minds since the financial crisis in 2008.
REIT's are generally good investments when other asset classes become more volatile. The real estate market isn't always correlated to the broader indexes and since 2008, many investors have avoided them based on a knee-jerk reaction that they will perform poorly when the market dips. The truth, though, is that certain REIT's are actually facing a bullish market right now.
While the Fed might have delayed its interest rate hike, it's a temporary issue that will eventually give way to a rising rate environment within the next year. This might not be positive news for prospective homeowners, but it is good news for companies that derive their income from rental prices. Continue reading "Is It Time To Consider This REIT For Your Portfolio?"→
Last week the Federal Reserve once again announced they would not be raising interest rates. To many on Wall Street this was good news; cheap money would continue to be available, thus making it more affordable to borrow money to grow business's and spur economic activity.
But there is a downside to continued low interest rates which comes in the form of uncertainty about when rates will increase and how those increases will affect economic activity and mainly businesses that are directly affected by interest rates. When we look at who is most affected by rising rates, the finance sector is of course first to come to mind; banks and other lenders, but also the real-estate industry.
If you racked up big gains in the stock market last year, you have Ben Bernanke and his cohorts at the Federal Reserve to thank.
The SP 500's 29.6% gain in 2013 (32.4% when dividends are included), which was the best year since 1997, was largely based on comments made by the Fed in December 2012.
Back then, the economy was so weak that the Fed committed to keep the federal funds rate at historic lows in place until at least the middle of 2015, even later than many economists had assumed. Against such a favorable interest rate backdrop, stocks faced little resistance.
Indeed, throughout 2013, the likelihood of an imminent increase in the federal funds rate remained off the table. And three Fed governors even suggested in December that interest rates would remain untouched into 2016.