Following the lead of the United States, many countries around the world have established REIT regimes during the last 40-plus years. The same attributes that have driven the growth of REITs in the U.S. - diversification, dividends, transparency, liquidity and performance - are fueling the growth of publicly traded real estate throughout the world.
Countries that have adopted REIT-like structures range from established financial environments, such as the United Kingdom and Japan, to emerging markets like Taiwan and Malaysia. The most comprehensive index for the REIT and global listed property market is the FTSE EPRA/NAREIT Global Real Estate Index Series, which was created jointly by the index provider FTSE Group, NAREIT and the European Public Real Estate Association (EPRA). The index is used by a variety of institutional investors, money managers and funds to manage real estate investment on a global basis. The Global Index Series contains the Developed Markets indices and the Emerging Markets indices (launched in January 2009). View the FTSE EPRA/NAREIT Global Real Estate Index daily returns.
At the end of July 2012, the FTSE EPRA/NAREIT Developed Market Real Estate Index consisted of 286 companies spread across 20 countries, representing an aggregate equity market capitalization of $921 billion. The FTSE EPRA/NAREIT Emerging Markets indices provides investors with a diverse representation of 126 publicly traded equity REITs and listed property companies representing an aggregate equity market capitalization of $113 billion from 17 emerging markets across the Americas, Europe, the Middle East, Africa and Asia.
This expansion of publicly traded commercial real estate worldwide has left investors with an ever-growing set of opportunities to further diversify their portfolios. For example, monthly total returns from January 1991 through July 2012 show that global equity REITs have demonstrated lower correlation to the Wilshire Total Market index than the vast majority of global equity investments.
Like U.S. REITs, global listed real estate has proven to provide an attractive mix of diversification and risk-adjusted performance. From 1991 through July 2012 both domestic and foreign REITs demonstrated a combination of high Sharpe ratios (that is, strong risk-adjusted returns) and low correlation with the broader market (that is, diversification power) that few equity investments could match. This suggests that a well-balanced, strong-performing investment portfolio should dedicate a significant allocation to global real estate, including U.S. REITs.
