Global REITs

Mercer Insights


Real Estate Investment Trusts


MERCER POINT OF VIEW

GLOBAL REITS


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Investors have traditionally looked to the real estate sector for diversification, income, and its ability to offset some inflation risk within a multi-asset investment portfolio. To maximize the “real asset” characteristics of the asset class, we believe that investors should focus, as much as possible, on owning the underlying assets. This suggests a primary focus on less liquid investments. However, global REITs offer a suitable alternative for investors requiring a more liquid implementation option.

Because real estate is a highly localized business, opportunities exist for managers to add value. Due to the localized nature of the REITs, the global REIT market is fragmented and relatively inefficient, so there is potential for skillful active managers to exploit these inefficiencies to generate alpha.

Global REIT investment managers can have slight style biases based on valuation techniques. Further, portfolio construction differences can lead managers to have varying levels of tracking error. There is enough style difference within the universe that investors looking to invest in more than one global REIT manager can choose investment managers with differing styles in order to construct a complementary portfolio.
 

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