No. of Recommendations: 7
> "US stocks, REITs rank 80th out of 94 industries for average ROE, and 82nd for average ROA."
Don't get me wrong. I wouldn't invest in US REITs either, separate from the boycotting issue, they're just too expensive.
But you have a good chance to get a humble 10-11% with relatively little volatility in your income, and very little stress, from UK REITs.
I'd agree that 8% seems pretty likely...at the moment, maybe your 10-11% for a while. But that's because of the specific opportunities and price levels at the moment. At the moment anybody who bought UTG at any time in the last 11 years has lost money, even counting dividends, for example, as there have been two separate big down cycles. I think it's possible that those who bought not long before the pandemic may never see a positive real total return.
My point is that REITs (those that are really in real estate) are, on average, poor investments, no matter what country they're in, because they don't generate value at a very high rate as a direct inevitable consequence of the nature of their business. They have dreary long run *average* returns, they have very long bad cycles, and they occasionally run into debt crises when management isn't as good as you thought.
A well informed investor picking the right security at the right point in the cycle can do very well, for sure. I've bought a couple in the past. But if one is not a subject matter expert, it's an industry that the average person will do better avoiding. There will be some winners, for sure. But if you're going to throw 40-60 darts and a dartboard to get the highest average score, and somebody lets you remove some of the below average numbers first, it makes sense to do it. There is no reason to start with a needless handicap.
Prime? Central? 12 years? That's an odd combination.
Not at all. It was chosen because it was considered one of the safest real estate bets in the world, and because that result emphasizes that even the safest bets in real estate have truly terrible cycles. Other things being equal, I'd rather skip industries that hurt you that badly for such long stretches with such regularity. Given an easy choice, I'd rather wander through a regular field than a minefield, even with a map : )
Would it not be fairer to respond to the argument that was made, than the opposite of it?
As far as long term returns go, I would not advocate holding REITs (UK or US) blindly regardless of price for the long term, even though the total return from REITs is roughly the same as stocks over very long periods of time.
You were responding to my comment that I filter out real estate from my global screening--which is a "shotgun" approach to portfolio construction. As that is the context, I absolutely stand by it. It's a poor sector to include if you aren't a subject matter expert, specifically BECAUSE you'd be doing it relatively blindly. It's a below average business sector in terms of both risk and return on average over time, no matter where it is, so the non expert will do better by simply excluding it.
Same with gold, basic materials, banks, insurers, and number of other sectors known for frequent pitfalls that are so easy to avoid just by avoiding the industry.
Jim
