This graph shows more than 1,300 benchmarks of global investments in exchange-traded equities and real estate (REITs and similar listed property companies, or LPCs). Stock benchmarks (including large-cap/small-cap and value/growth styles) are shown as dots: light blue for U.S., dark blue for global, ex-U.S., regional, and non-U.S. country-specific. U.S. listed REITs are shown as large green dots, global/ex-U.S./regional LPCs as green crosses, and non-U.S. country-specific LPCs as green Xs. The vertical axis shows risk-adjusted returns (Sharpe ratios) computed from monthly gross returns since the beginning of the 1990s, while the horizontal axis shows the correlation with the broad U.S. stock market. Basically, the foundation of your investment portfolio is your allocation to the broad U.S. stock market, and the question is what else to add: you want assets that will provide strong diversification benefits, which means both strong risk-adjusted returns and low correlation with your U.S. stocks. That is, you want assets in the upper-left corner of the graph. The real estate asset class--especially exchange-traded U.S. REITs--has historically provided a better combination of low correlation and high risk-adjusted returns than almost any other equity or real estate investment. In short, diversification into the real estate asset class (through exchange-traded REITs) has been more valuable to investors who already have exposure to the broad U.S. stock market than diversification into non-U.S. stock markets. Questions? Contact me at bcase@nareit.com.

1. Real Estate in a Global Equity Portfolio
Risk-Adjusted Performance and Diversification
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
Risk-Adjusted Performance and Diversification Potential
U.S. and Global Investment Benchmarks, January 1990 – November 2014
Nigeria
Pakistan
Jordan Switzerland
0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00
Sharpe ratio
Correlation with Dow Jones Total Market
U.S. stocks U.S. REITs Global stocks Global listed real estate (global/regional) Global listed real estate (non-U.S. country) 80% of global stocks
• Exchange-traded
commercial real
estate has
contributed strong
risk adjusted returns
and diversification to
a global equity
portfolio
• Low correlation
between domestic
and global / regional
REIT indexes has
created additional
diversification
benefit within the
real estate asset class
Note: Based on monthly returns. Benchmarks with negative Sharpe ratios are not shown. The top and bottom of the box encompass the middle 80% of stock benchmarks by
Sharpe ratio; the sides of the box encompass the middle 80% of stock benchmarks by correlation coefficient. Source: NAREIT® analysis of data from Interactive Data Pricing
and Reference Data accessed through FactSet.
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