Performance and Role of Singapore REITs in Multi-Asset Class Investment Portfolios

Abstract

In July 2002, the first Real Estate Investment Trust (REITs) was launched publicly on the Singapore Stock Exchange for trading by different investors. Since then, the local REITs market has grown rapidly to reach an estimated market capitalization of SGD 26 billion in April 2007. However, due to its short history in the local investment scene, there were limited research and studies done to investigate the nature and performance of these local financial instruments, i.e. the Singapore REITs or S-REITs. This exploratory research thus seeks to plug this research gap by reviewing the actual performance data of the S-REITs between the period of January 2003 and December 2007. Three major areas relating to the S-REITs were examined within the scope of this research. First is whether the S-REITs is an asset class comparable to other major or similar asset classes. Second major investigations related to the potential diversification and performance enhancement that S-REITs as an asset class can bring to a multi-asset class investment portfolio of an investor. Finally this research studied the issue of strategic asset allocation within multi-asset class investment portfolios comprising of equities, government bonds and S-REITs. The S-REITs, market is still relatively young and many investors are still learning about the nature and merits of this particular class of investment asset. The results of this research provided some evidences that S-REITs could be considered as a separate asset class when investors look to diversify and strategically better allocate their asset composition within their investment portfolios. While this research attempted to answer several fundamental questions relating to the nature and performance of the S-REITs as an asset class, it is hoped that it will also serve as a platform for other researchers to investigate into related and similar issues of concern as the local S-REITs market continues to grow.