The Case for REITs in the Mixed-Asset Portfolio in the Short and Long Run

Executive Summary. The poor performance of the Stock Market in the United States up to the middle of 2003 has meant that real estate investment trusts (REITs) are increasingly been seen as an attractive addition to the mixed-asset portfolio. However, there is little evidence to indicate the consistency of the role REITs should play in the mixed-asset portfolio over different investment horizons. This study's results highlight that REITs do play a significant role over both different time horizons and holding periods. The findings show that REITs attractiveness as a diversification asset increase as the holding period increases. In addition, their diversification qualities span the entire efficient frontier, providing return enhancement properties at the lower end of the frontier, switching to risk reduction qualities at the top end of the frontier.