Real estate investment trusts may do better than other stocks in a bear market but are not invincible, according to the Heitman/PRA REIT Sheet, a monthly industry report.
While they outperformed the Standard & Poor's 500 Stock Index in the bear markets of 1973-'74, 1977-'78 and 1983-'84, it's not clear whether they would fare better than the index in a future correction.
Historically, REITs have tended to move closely in line with the Russell 2000 index, given that they are by and large small-capitalization stocks.
Based on data from Heitman/PRA and Wilshire Associates, Santa Monica, Calif., the rolling four-year correlations between the Russell 2000 and Wilshire REIT index were 0.92% for the 1991 and 1992 periods ended Sept. 30. But in recent years, the correlation has slipped to 0.26% in the rolling four years through Sept. 30, 1996.
The report concludes the real downside cushion is the dividend yield of REITs, which currently stands at 6.55%, more than half a percentage point above that of the Dow Jones utility index. Certain REIT sectors, such as health care and retail, have higher average yields, of 7.52% and 7.21% respectively.
