Analysis by the Portfolio Construction and Strategy Team suggests that three key investor concerns can be addressed by incorporating REITs in a diversified portfolio.
- REITs can potentially benefit from periods of rising inflation expectations and economic growth given they typically provide a reliable and growing stream of income.
- Investors looking to diversify income streams may consider an allocation to REITs, which seeks to offer more predictable income and attractive yields while also offering growth potential.
- For investors concerned about concentration in US and technology stocks, REITs have the potential to offer diversification when there is volatility in the tech sector.
Market expectations for inflation and economic growth are rising as economies begin to recover post COVID. Inflation remains the topic du jour and probably for good reason. Having been in a downward trend since 1980, falling from 15% to around 2% in the last decade1, inflation is now on the rise. Whether this rise in inflation proves to be transitory or not, it is a new environment relative to the past and requires careful examination of innovative frontiers in diversifying asset classes.
According to the PCS Team, three of the most common concerns faced by investors today can be addressed by incorporating REITs in a diversified portfolio. REITs may be an appropriate solution for investors who are concerned about higher inflation, are seeking income in the extended low interest rate environment, and who may also be looking to diversify away from US growth and technology concentrations in the equity portion of portfolios.