Public Market & REIT Volatility vs Private Real Estate Investing?
A volatile stock market in 2018 and increasing treasury rates has many investors questioning the direction of the market and if their asset allocation has them prepared for what is to come. Instead of losing sleep at night while worrying about what is next in the public markets, consider some more stable alternatives like private real estate investments.
Public REITS are NOT the same as investing in private real estate despite the fact that REITS only own real estate. In fact, from 1/2/18 to 2/8/2018, Public REITS (as measured by the IYR ETF) dropped a whopping 11.4% as the US 10 year Treasury rate rose from 2.43% to 2.85%. This period is a great example of the core difference of investing in REITS and private real estate.
MLG Capital tracks the performance of the stock market with publicly traded REITs and private real estate investments. The graph below reveals a 10-year history of how volatile the stock market (S&P 500, red line) and public REITs (IYR ETF, black line) are when compared to private real estate investments (NCREIF property index, green line). It is easy to see that the publicly traded investments are significantly more volatile than private real estate.
*The S&P 500 is the leading indicator of US Large Cap Equities. **The IYR ETF seeks to track the investment results of the Dow Jones US Real Estate Index, which measures the performance of the publicly traded real estate sector of the US equity market. ***NCREIF Property Index is a quarterly measure of the unleveraged composite total return for private commercial real estate properties held for investment purposes only.
The above graph also reveals that the returns of REITs and the S&P 500 are more correlated to each other than private real estate. Too much correlation inside a portfolio, especially in volatile investments, could result in unnecessary risk. There may be more volatility to come and your portfolio should be well positioned to manage the risk. Private real estate investments provide some relative stability and help investors diversify their holdings.
Could you benefit from greater diversification and stability in your portfolio? Consider further diversifying your portfolio, give MLG Capital a call to learn more about the benefits of investing in private real estate like its favorable tax treatment or how it performs in inflationary cycles. Read 7 Ways that Private Real Estate Investment Can Impact your Investor Portfolio
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