The case for including real estate in a balanced portfolio has never been stronger. As investors contemplate a diminishing equity risk premium, and reflect on indifferent recent results, equity return expectations are being scaled back.
At the same time, interest rates are beginning to push upward from 40 year lows. As a consequence, the comforting fixed income returns of the past 10 years are now but a fading memory.
Against this backdrop, real estate offers a compelling combination of reliable income and diversification. The benefits of real estate include:
- High current income
- Stable long-term returns
- Low volatility
- Low correlation to other asset classes
- Inherent inflation hedge
- Predictable cash flows
- Long-term return expectations exceed virtually all actuarial requirements
- Opportunity exists for active management to enhance structural alpha
