CAIA association recently explained why REITs ( Real Estate Investment Trusts) cannot be the keystone of your portfolio. Their analysis revealed that broad REITs ETFS have 1. High Correlation to Equities, 2. High beta to the stock market, and 3. near zero correlation to bonds, thereby limiting their diversification benefits. Mortgage and residential REITs have some advantages and disadvantages compared to other common income-generating assets.
REITs Vs Bonds
Higher yield than government bonds and some corporate bonds currently. But yields are variable, unlike the fixed coupons of most bonds.
Less interest rate sensitivity than bonds. But still impacted by rate changes.
Higher risk than investment-grade bonds. Similar to high-yield corporates.
REITs Vs Dividend Stocks
Higher dividend yields on average than S&P 500 stocks.
Less volatile dividends than individual companies. It smoothed out across many properties.
Still equity-correlated, although with a lower beta than broad markets.
Narrower diversification than a dividend ETF across many market sectors.
In summary, mortage and residential REITs offer lower risk than broad REIT ETFs and better diversification than equities. Full scoop here: https://shorturl.at/jknCK
