Real estate stocks outperformed the broad markets globally in March, led mainly by a strong performance from U.S. REITs, which benefited from aggressive government action to moderate the difficulties in the financial system, a LaSalle Investment Management (Securities) monthly report reveals.
Although real estate stocks outperformed broader market indices overall, Todd Canter, CEO for LaSalle Investment Management (Securities) Asia Pacific said: "Real estate companies in Asia Pacific, as in Europe, lost ground in the month and performed generally in line with their country stock markets. We believe that this is partly a reaction to the very good performance turned in by the stocks in 2007, coupled with the fact that the broad markets in these countries are down even more in 2008."
Hong Kong was the top global real estate market in 2007, up nearly 20%, but has done poorly so far in 2008, down 9.1%, with a decline of 6% in March. The broader Hong Kong stock market has done considerably worse, off 19% so far this year.
Mr Canter continued: "As restrictions on individual mainland Chinese investors ease, we expect increased interest in both real estate stocks and Hong Kong securities. Earnings for Hong Kong real estate companies have been strong, and we expect this relative strength to continue."
The data for 2008 so far underscores the power of diversification, a theme explored in a white paper recently authored by Mr Canter entitled "The diversification benefits of REITs", which examines the diversification impact of property securities on a mixed-asset portfolio consisting of global stocks and global bonds.
Each asset class was examined from a risk-return perspective and the results indicate that investors benefit from adding either Asian or global property to their traditional equity and bond portfolios, Mr Canter said in the report.
The study examined the total returns for the three major assets from 1990 to 2007 and concluded the following:
- The best performing class was global property securities, which generated average annual returns of 10.71%, followed by Asian property securities with average annual returns of 9.39%.
- Both global property securities and Asian property securities had superior returns to global stocks and global bonds.
- The relationship between property securities and other asset classes, as measured by correlation of returns, was low-to-moderate, suggesting that property securities offer significant diversification benefits because they behave differently from the other asset classes.
- For portfolios with average risk tolerances, adding property securities resulted in increased returns of 148 basis points, while holding risk constant.
The results of this study indicate that property securities add significant diversification benefits to a mixed-asset portfolio.
Mr Canter said, "Added return without added risk, that is the power of diversification and that is the power of Asian and global property securities in a mixed-asset portfolio."
Mr Canter recently moved to Hong Kong from Baltimore to become CEO for LaSalle Investment Management (Securities) in Asia Pacific. Jack Chandler remains Regional CEO for LaSalle Investment Management Asia Pacific. Canter's move to Hong Kong reflects LaSalle's commitment to the Asia Pacific region and the continued importance of the region to the Company's overall strategy. Mr Canter, who has been with the Company for more than 13 years, will also continue to act as global strategist and head of product development for the Securities division.