WASHINGTON, DC-In research commissioned byNAREIT, Morningstar has answered a naggingquestion since the crash and recession—whether or not REITscorrelate with larger market equities and bonds. The answer, notsurprisingly, is a complex one, but the primary finding is thatthey do not and that REIT dividends tend to smooth out the worst ofthe market turmoil.

Correlation, or more appropriately the lack thereof, is anessential part of a well-rounded, diversified, investment strategy.It means that REIT returns do not move in tandemwith stock or bond returns. So when the equities and/ or bondsdrop, REITs can be expected to increase or at least staysteady.

And the short-form answer is . . . that the study reinforced theimportance of REITs in maintaining portfolio diversity, saysMichael Grupe, executive vice president of Research and InvestorOutreach at NAREIT. “They are important even, or rather especially,if you are trying to build a portfolio to provide added protectionfrom extreme downside risk.”