The Nature of Diversification is Surprise

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Figure 1. Global REITs are currently outperforming a diverse range of asset classes

Global diversification has gotten a lot of criticism lately — sometimes unnecessarily, in our view. One asset class that comes to mind in this light is global real estate investment trusts (REITs). At present, as measured by the iShares REET (Figure 1), global REITs are the top-performing asset class, up more than 11% year-to-date. But that doesn’t tell the whole story: if you look at the last 12 months, REET is up nearly three times as much as the S&P 500 (iShares IVV) and dominates other equity asset classes. As of today, FactSet estimates S&P 500 fourth-quarter earnings to be up 13.3%, which makes the pessimism in the market confounding: remember, it is fundamentals that drive markets. We advise investors to be broadly, globally diversified.

Please see the 2019 Global Perspectives Forecast – The Storm before the Calm.

Source: FactSet

All investing involves risks of fluctuating prices and the uncertainties of rates of return and yield inherent in investing.

Risks of real estate investing are similar to those associated with direct ownership of real estate, such as changes in real estate values and property taxes, interest rates, cash flow of underlying real estate assets, supply and demand, and the management skill and credit worthiness of the issuer. Concentration of investments in one or more real estate industries may result in greater volatility than a portfolio that is less concentrated. Other risks of include but are not limited to initial public offerings risks, convertible securities risks, manager risks, market trends risks, non-diversification risks, other investment companies risks, price volatility risks, Rule 144A securities risks, inability to sell securities risks and securities lending risks.

Foreign investing does pose special risks including currency fluctuation, economic and political risks not found in investments that are solely domestic.

Diversification does not guarantee against a loss, and there is no guarantee that a diversified portfolio will outperform a non-diversified portfolio

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