Investors Remember Why They Like REITs

WASHINGTON, DC—It's like old times again. REITs are back to posting healthy returns that are outpacing the larger equity market. For Q1, US REIT returns were nearly five times that of the broader market, according to new figures from NAREIT.

NAREIT reports that the FTSE NAREIT All REITs Index rose 8.57% on a total return basis for the quarter and the FTSE NAREIT All Equity REITs Index was up by 8.52%. The FTSE NAREIT Mortgage REITs Index gained the most at 11.16%. All of these indices bested the S&P 500, which was up 1.81% for the quarter. "REITs demonstrated their resiliency in the first quarter of this year," NAREIT President and CEO Steven A. Wechsler says in a prepared statement.

This is not to say that REITs will provide better returns than the larger market consistently in the long run. Rather, returns of the two sectors tend to match each over in the long run. Over the last twenty years, for example, the FTSE NAREIT All REITs Index produced a compound annual total return of 10.17% compared with 9.53% for the S&P 500, as Wechsler notes.

However REITs don't move in lock-step with the equity markets as 2013 so amply illustrated. 2014, it seems, is shaping up to be the year when investors remembered that that particular characteristic-diversification-is a good thing. REITs "function as an important diversifier in investment portfolios, reducing overall portfolio volatility while increasing overall portfolio returns," Wechsler says.

REITs' dividends and their yield are another bonus for REITs, from an investor's perspective. Here too, they didn't fail to disappoint this quarter. NAREIT reports that the dividend yield of the FTSE NAREIT Mortgage REITs Index at March 31 was 9.94%, with home financing REITs yielding 11.04% and commercial financing REITs yielding 7.03%.

The dividend yield of the FTSE NAREIT All REITs Index was 4.14%, and the yield of the FTSE NAREIT All Equity REITs Index was 3.64%.