Posted on 12/14/2008 6:09:04 PM PST by ken21
A MAIN benefit for those who own real estate investment trusts has been their low historical correlation to the rest of the financial markets. In other words, REITs have tended not to move in tandem with most stocks and bonds, thus making them good portfolio diversifiers.
All of that seemed to change this year amid the deepening credit crisis and Wall Street’s meltdown. Just as stocks fell fast and furiously, so, too, did most REIT shares. (And at those times when stocks were rallying back, REITs also moved higher.)
(Excerpt) Read more at nytimes.com ...
fyi
fyi
Some are heavily oversold. I would particularly recommend the medical-properties sector. Look for low debt, and all properties rented to solid tenants.
fyi
people forgot that the value of an asset is correlated perfectly with the value of money.
But who is a solid tenant these days? Hospitals? Multi-doctor offices?
how will those fare if medicine is nationalized?
Hospitals with good finances and doctor’s offices are what to look for. People might stop shopping, but they still need to use doctors and hospitals, and a lot of the revenue is guaranteed by the government.
Presumably, even if national health care is enacted, doctors and hospitals will still need buildings in which to work, and have to pay rent for them.
Yes there is one signal, the objective exchange value of money, that most (but not all) assets will move in value in tune with. Then their own "signal" imposed on top of that. But said "own signal" may itself be negatively correlated with the original. (Simple example, a company that derives half its earnings from foreign trade in hard foreign currencies).
And with some assets, there simple isn't any correlation to speak of. (E.g. yen bonds measured in dollars over the last year).
REITs have excellent rear view mirror performance, standard deviation, sharp ratio, and low correlation with the broad market. All signs of exactly the sort of asset class you can expect to mean revert (lol). Diversification is good, trend following with rear-view-mirror guidance is not.
Suffice to say the bogeyman in the structured asset models was the presumption that default correlations would be stable viz-a-vis historic norms. However, when credit froze, default correlations suddenly went off the charts. Default correlations were therefore correlated to the availability of credit, a measure of the value of money.
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