CFAI text volume 5 page 18 says 'Correlations between unhedged NAREIT and the NCREIF are both low suggesting that securitized real estate investments is a poor substitute for direct investment.
I don’t understand the part that is in italics in the above statement. Can someone please explain? Thanks.
NAREIT index is index for basically REITs, which are indirect investment. NCREIF in index for direct property prices.
Their low correlations indicate that, investing in REITs are a poor substitute for direct real estate purchases…
Hope this helps.
Thanks Sooraj. That’s clear!
Appreciate for sharing this information I like it.
Above is true.
To give an example in 1987 when the big crash happened reits were down almost the same as equities. It was something like 20 percent.
If you went out and tried to buy a piece of property that day, nobody would suddenly offer a 20 percent discount on it.
This really makes the case for Alt’s because Reits don’t really seem to do a lot for diversification benefits. So it’s worth going and buying direct real estate assets for your portfolio rather than just getting exposure through the markets.