INVESTORS with higher-risk appetite should seriously consider investing in global properties through real estate investment trusts (REITs) as this has proven to offer better returns than other asset classes over a long-term period.
Citibank vice-president (wealth management products) Charles Sik said with the liberalisation of foreign exchange administration rules, coupled with de-pegging of the ringgit, such investments also provided investors the opportunity to diversify their risks and investment portfolios.
“The performance of REITs, via the indices of National Association of Real Estate Investment Trusts (NAREIT) of North America and European Public Real Estate Association (EPRA), has shown that investments in global properties for a period of three, five and 10 years ended August 2005, had outperformed other asset classes in Malaysia such as equities and balanced assets on an absolute and risk-adjusted return,” Sik said during an interview in Kuala Lumpur.
“For example, for a period of 10 years, investments in global properties and REITs registered absolute returns of 187% (in ringgit terms) compared with Malaysian bonds (69%) and equities (28%).
“If we stripped out the effects of currency (RM versus US$) from the Asian financial crisis, global property and REIT indices still provided a decent 135% return over 10 years (in US$ terms).”
The findings over a 10-year period also show that global REITs are a higher-risk asset class compared with Malaysian bonds and other balanced portfolio assets, but slightly less riskier than equities.
He added that although tainted with higher risk, global REITs registered the highest returns among all the three comparative asset classes during the period.
Apart from this, global REITs also provide stable income returns and capital gains in the long run.
“From 1995 to 2004, studies showed that this type of asset class turned in total average returns of 13.5% in markets like North America, Asia and Europe combined,” he said.
Investing in global properties, he noted, would also safeguard one’s wealth against inflation. Performance of the REIT indices (EPRA and NAREIT from Jan 1, 1995 to Aug 31, 2005) showed that average returns from global REIT investments easily outperformed Malaysia’s inflation rate.
For example, average returns from global REITs of 13.5% easily outstripped the average Malaysia’s inflation rate of 2.4% per annum between 1995 and 2004.
Furthermore, global REITs have low correlation with other classes of Malaysian assets and, hence, further improve investors’ diversification portfolio.
BY Daljit Dhesi
Source: Malaysia Star
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