Spanish real estate investment trusts (REITs) emerged as an important and rapidly expanding property investment vehicle, against the backdrop of improving Spain macro-economic fundamentals and commercial property market. This sees Spanish REITs being the 3rd largest REIT market in Europe, offering access to important Iberian and European property assets, with the added benefits of transparency, governance and liquidity. The purpose of this paper is to assess the significance, risk-adjusted performance and portfolio diversification benefits of Spanish REITs in a mixed-asset portfolio over August 2014–February 2018.Design/methodology/approachUsing monthly total returns, the risk-adjusted performance and portfolio diversification potential of Spanish REITs over August 2014–February 2018 are assessed. Asset allocation diagrams are used to assess the role of Spanish REITs in a mixed-asset portfolio.FindingsSpanish REITs delivered strong risk-adjusted returns compared to stocks over August 2014–February 2018, but with limited portfolio diversification benefits. Compared to bonds, Spanish REITs offered competitive risk-adjusted returns and excellent diversification benefits. Importantly, this sees Spanish REITs as strongly contributing to the Spanish mixed-asset portfolio across the portfolio risk spectrum.Practical implicationsThe 2012 Spanish REIT regulatory changes have been pivotal in providing a supportive environment for Spanish REITs’ growth. Spanish REITs are now a significant market in a European context. The results highlight the major role of Spanish REITs in a Spanish mixed-asset portfolio. The strong risk-adjusted performance of Spanish REITs compared to stocks sees Spanish REITs contributing to the mixed-asset portfolio across the portfolio risk spectrum. This is particularly important, as an increasing number of investors have utilised Spanish REITs to obtain their property exposure in a liquid format in recent years.Originality/valueThis paper is the first published empirical research analysis of the risk-adjusted performance of Spanish REITs, and the role of Spanish REITs in a mixed-asset portfolio. This research enables empirically validated, more informed and practical property investment decision-making regarding the strategic role of Spanish REITs in a portfolio.
Journal of Property Investment & Finance – Emerald Publishing
Published: Sep 18, 2018
Keywords: Spain; REITs; Portfolio diversification; Risk-adjusted returns; Asset allocation; SOCIMIs