REITs in a Mixed-Asset Portfolio

Abstract: Diversification is a significant element of asset allocation. An alternative investment of great interest for many investors is real estate. The paper will explore the hypotheses of whether real estate investment trust (REITs)warrants inclusion in an investment portfolio. The hypotheses will be explained qualitatively and quantitatively by exploring material evidence of the benefits of real estate in mixed-asset portfolios in terms of inflation hedging, diversification, volatility dynamics etc. Variability among real estate and other asset classes such as equity and bonds will be explored through a classic Fama French factor model as well as more recent machine learning methods. Finally, a portfolio simulation analysis of a passive portfolio after the introduction of REITs over a 10 year period (2012-present) will be carried out to analyze the returns and volatility of a hypothetical mixed portfolio. v