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In the Wake of Stock Market Turmoil: Returns, Volatility, Correlation, Beta, Diversification Benefits, and Forward Expectations for REITs

January 9, 2019

In the Wake of Stock Market Turmoil: Returns, Volatility, Correlation, Beta, Diversification Benefits, and Forward Expectations for REITs

January 4, 2019 | Brad Case | Nareit

December 2018 was bitter for investors. Total returns in the broad REIT market were -7.73 percent—but that was good news compared with large-cap stocks (-9.03 percent according to the S&P 500), small-cap stocks (-11.88 percent for the Russell 2000) and especially small-cap value stocks (-12.09 percent). The same was true for 2018 as a whole: REIT investors saw total returns of -4.10 percent, but that was good news compared with large-cap stocks (-4.38 percent), small-cap stocks (-11.01 percent), and small-cap value stocks (-12.86 percent).

Even more worrisome was the surge in market volatility: the broad stock market declined by more than 1.5 percent on December 4, 7, 14, 17, 19, 20, 21, and 24—and again on January 3, giving investors nine especially poor days in less than a month. (REIT investors were spared most of those migraine days, with just four drops exceeding 1.5 percent.) As a result, stock market volatility surged to 30 percent, more than twice its normal level—and REIT investors were carried along for the ride with volatility increasing to 28 percent, even though downside volatility remained 13 percent less for REIT investors than for investors in the broad stock market.

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The Blue Vault Summit could not have been more perfectly timed. This gathering of the Broker Dealer and Sponsor communities provided insightful and open discussion from several vantage points. These conversations are paramount, especially in a time of significant regulatory change.

Matthew C. Strife Suitability Manager, The O.N. Equity Sales Company Broker Dealer Educational Summit 2016 April 14, 2016