Academic journal article Journal of Management Research

Performance and Role of Singapore REITs in Multi-Asset Class Investment Portfolios

Academic journal article Journal of Management Research

Performance and Role of Singapore REITs in Multi-Asset Class Investment Portfolios

Article excerpt


In July 2002, the first Real Estate Investment Trust (REITs) was launched publicly on the Singapore Stock Exchange for trading by different investors. Since then, the local REITs market has grown rapidly to reach an estimated market capitalization of SGD 26 billion in April 2007. However, due to its short history in the local investment scene, there were limited research and studies done to investigate the nature and performance of these local financial instruments, i.e. the Singapore REITs or S-REITs. This exploratory research thus seeks to plug this research gap by reviewing the actual performance data of the S-REITs between the period of January 2003 and December 2007. Three major areas relating to the S-REITs were examined within the scope of this research. First is whether the S-REITs is an asset class comparable to other major or similar asset classes. Second major investigations related to the potential diversification and performance enhancement that S-REITs as an asset class can bring to a multi-asset class investment portfolio of an investor. Finally this research studied the issue of strategic asset allocation within multi-asset class investment portfolios comprising of equities, government bonds and S-REITs. The S-REITs, market is still relatively young and many investors are still learning about the nature and merits of this particular class of investment asset. The results of this research provided some evidences that S-REITs could be considered as a separate asset class when investors look to diversify and strategically better allocate their asset composition within their investment portfolios. While this research attempted to answer several fundamental questions relating to the nature and performance of the S-REITs as an asset class, it is hoped that it will also serve as a platform for other researchers to investigate into related and similar issues of concern as the local S-REITs market continues to grow.

Keywords: Investment portfolio, Diversification of investment, Multi-asset, Investment performance

1. Introduction

Besides equities and bonds, real estate is one of the largest asset investment classes available to investors. They provide the benefits of consistent and predictable cash flow generated through rental incomes, portfolio diversification due to their perceived low correlation of returns with equities and bonds as well as acting as a good hedge against inflation (Imperiale, 2006; Geltner, Miller, Clayton & Eichholtz, 2007). In fact, a well-diversified and appropriately allocated investment portfolio is one whereby real estate asset investments are added to bonds and equities (Frush, 2007). While one can invest directly into real estate assets and gain total control over the invested assets, the vast majority of portfolio investors prefer to gain exposure to the real estate market via the Real Estate Investment Trusts (REITs) due to the latter's advantages of greater liquidity and smaller initial capital outlay (Imperiale, 2006).

Typically structured as commercial entities listed on the local stock exchanges, REITs acquire real estate property assets either within a particular property sector or across different property sectors as part of their diversification strategy (Geltner et al., 2007). Based on the cash flows generated by their underlying real estate assets, REITs generally issue securitized units or shares for subscription by investors usually on a regular basis. Depending on the taxation regime involved, REITs typically distribute most, if not all, of their incomes generated from their real estate holdings to these unit or share holders. Because REITs allow investors to seek higher returns and lower risks within their investment portfolios, they have increasingly become an indispensable part of any well-diversified multi-asset class investment portfolios (Imperiale, 2007).

Numerous studies had been done on the risk and return characteristics of REITs and their diversification benefits for portfolio asset allocation for more than two decades in the more matured REIT markets of the US and Europe as well as the Australian Listed Property Trust (LPT) market where these investment assets have been established since the early 1960s. …

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