REITs - Uncorrelated?

L

LaxFan

Are REITs supposed to be uncorrelated to the stock market?

I've seen it mentioned that they can be used as part of a diversified portfolio and may be less correlated to the general market. However, when the market dropped in March, REITs tanked along with every other sector in the market. Realty Income (O) dropped 40%. (If I had a house with a tenant or two in it, it would not drop 40% in a week).

Do REITs have any special characteristic that differentiates them from owning any other ETF?
 
Most of them are based upon real estate, others pipeline services and there are many more. Since they pay out most of what they earn and what they are based upon is in these times very risky. But if you do your own research maybe you find something fitting for you, my explanation was just why I personally do not touch them.
PS: always do your research when investing.
 
Private REITs are less correlated than public REITs. However, correlations tend to spike during panics. This is because, fundamentally, assets based upon economic activity are all going to be impacted by the risk-free rate, inflation expectations, and the risk premia of the asset class (which has an embedded growth component).

Sovereign bonds and economic assets (stocks, credit, commodities, etc.) have lower correlations, where the price of treasuries generally rise when the price of economic assets fall. Some risk factors, like momentum, tend to exhibit mildly alternative risk premias, because the trade is not necessarily contingent upon the economic regime.
 
Most of the REITs tanked in March because of fear that tenants would be unable, or unwilling, to pay rent during the pandemic. If you really want to invest in REITs, stick with the data center REITs such as CyrusOne, since they are booming.
 
Had 2 reits for the first time, since the end of July ; quite often they were down even if the market was up & opposite.
(can't say how often in %, sorry, just my 2 cents)
 
LaxFan said:
Do REITs have any special characteristic that differentiates them from owning any other ETF?
More...

Of course. REITS typically pay dividends. And they're often attractive. Just be aware that with potentially higher reward, there is often higher risk.
 
There's this concept called Beta, highly recommend a google on it rather than trying to reinvent the wheel.
 
Sig said:
There's this concept called Beta, highly recommend a google on it rather than trying to reinvent the wheel.
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I'm well aware of beta, but was trying to ascertain some info regarding REITs/correlations.
 
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