The Case For Going Global With Real Estate Investing
The cliché about real estate is that it’s all about “location, location, location”. However, over the last 20 years or so, investors have seen their opportunities to invest in locations both more numerous and further from home radically expand. Using a diversified portfolio of Real Estate Investment Trusts (REITs), a single investor can potentially access thousands of properties across roughly two dozen countries. While diversification is often touted as a potential benefit to any investment strategy on its own merits, here we consider the question as to whether US investors are well served by looking beyond domestic real estate in their portfolios.
Coming off nearly a decade of strong US stock and real estate market returns and economic recovery, as well as a significantly stronger US dollar over the last three years, it is unsurprising that US REITs1 have outperformed international REITs2 in absolute terms since 1990. However, due to the fact that US and international REITs are not perfectly correlated (less correlated historically than US3 and international equities4, in fact), there has been a significant diversification effect in owning a blended 50% US /50% international mix of global REITs5 over that time period, which results in a better risk-adjusted return compared to a US-only real estate benchmark1 (see Exhibit 1).