WASHINGTON, DC-NAREIT-commissioned research shows that a missing ingredient in some, not all, target date funds is REITs. Currently roughly half of target-date funds (funds that automatically shift to a conservative mix of stock and bonds and investment styles as the holder gets closer to retirement age) do not have real estate in their holdings, Michael Grupe, executive vice president of research and investor outreach, tells GlobeSt.com. If they do, it is often so small as to be considered insignificant.

NAREIT tapped financial research organization Wilshire Associates to explore how REITs help, or not, goose returns for these vehicles, whose reputation took a battering during the recession. Wilshire examined the period from 1976 through 2010 and found that a target-date portfolio that included US REITs at the beginning of that 35-year-stretch would have produced a portfolio value nearly 10% higher than a portfolio without REITs. Put another way, a $10,000 starting portfolio with REITs would have generated $322,279 in retirement savings over 35 years, $28,634 more than a portfolio without REITs.

Wilshire found that, depending on the number of years to retirement, optimally allocated target-date funds should include REIT allocations up to nearly 18%.

The reputation of target-date funds took a hit during the crash because, in many cases, they did perform as expected. That is, they did not deliver an appropriate return for holders nearing retirement and in some cases were found to have constructed inappropriate portfolios for this constituency. Gruppe, though, says the Wilshire research looks at a far larger study period than just the recessionary period. “Wilshire is not speaking directly to the financial crisis and in hindsight that was a pretty broad based meltdown.”