Potential benefits of real estate in DC plans

7 minute read

March 2022

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REITs offer a long track record of benefiting participants through diversification and long-term total return, characteristics that may be well suited to meet the needs of defined contribution plans.

An evolving asset class: today’s REIT market is driven largely by alternative property types

U.S. REIT sector breakdown, 2000 vs. 2022

US REIT sector breakdown
DC REIT adoption disconnected from other retirement plans

Average real estate allocation

Average real estate allocation
Asset class correlations create potential diversification benefits

25-year correlation matrix

25-year correlation matrix
Since the beginning of the modern REIT era in 1991, U.S. REITs have returned 11.6% per year—0.7% more than the S&P 500 and 6.1% more than U.S. bonds

Growth of $100 and annualized returns since 1991

Growth of 100 and annualized returns since 1991
Adding real estate to a portfolio has historically resulted in higher returns, similar volatility and better risk-adjusted performance

2000–2022

Annualized Total Return Standard Deviation Sharpe Ratio
Country and sector performance dispersion has the potential to benefit active managers

Total return in USD

Total return in USD

FURTHER READING

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November 2022 | 6 mins

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October 2022 | 1 min

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Recession and the roadmap for listed and private real estate

September 2022 | 17 mins

We see an economic backdrop that will create an opportunity for strong vintage returns for both listed and private real estate. Both cyclical and secular shifts are likely to create investment opportunities, and we think allocating across both private and listed real estate will be critical.

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