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Real Estate

Most investors hold real estate as a home. Some invest separate in this asset class directly or indirectly via real estate investment trusts (REIT). Are these investments effective diversifiers?

REIT Funds as a Diversifier for Stocks

Are Real Estate Investment Trusts (REIT) as an asset class a good diversifier for the stock market? To check, we focus on monthly correlation of returns as a measure of diversification capacity for Vanguard REIT Index Fund Investor Shares (VGSIX), a mutual fund with a reasonably long track record “designed to track the performance of the MSCI US REIT Index.” We use S&P 500 Depository Receipts (SPY) as a proxy for the broad U.S. stock market. For comparison, we also consider returns for three REIT Exchange-Traded Funds (ETF): iShares Dow Jones US Real Estate (IYR), SPDR Dow Jones REIT (RWR), and Vanguard REIT Index ETF (VNQ). Using monthly dividend-adjusted returns for VGSIX and SPY for the period July 1996 through December 2010 (174 monthly returns), we find that: Keep Reading

Housing Price Reversion to Trend

Do real housing prices revert to some trend? If so, where do they stand now with respect to trend? In their February 2010 paper entitled “The Margin of Safety and House Price Turning Points: Observations from the US, the UK and Japan”, Mitsuru Mizuno and Isaac Tabner investigate real housing price deviation from and reversion to trend in three developed markets. Using quarterly measures of housing price, inflation, disposable income, GDP and rent from 1960 (UK), 1963 (U.S.) and 1977 (Japan) through 2009, they conclude that: Keep Reading

Any Tools to Implement Value-Momentum Asset Class Allocation?

A reader asked: “Regarding ‘Combined Value-Momentum Tactical Asset Class Allocation’, have you developed any sort of screen or model that ranks value exactly as studied in the referenced paper (asset yield or earnings yield)?” Keep Reading

Can Real Estate Experts Provide Reliable Advice for Commercial Property Investing?

While we normally do not stray far from the stock market, an article on the forecasting ability of commercial real estate gurus relates strongly to our ongoing investigation of investing expertise. Do these experts add value for investors in the relatively illiquid real estate market? In his 2005 paper entitled “A Random Walk Down Main Street: Can Experts Predict Returns on Commercial Real Estate?” David Ling examines the ability of institutional owners and managers to predict commercial real estate investment performance for various property types across major metropolitan markets. Using (1) predicted relative property returns (desirability rankings) for nine property types and 16 metropolitan markets from the Real Estate Research Corporation’s (RERC) quarterly Real Estate Investment Survey over a thirteen-year period and (2) corresponding National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index returns, he concludes that: Keep Reading

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