REITs – BT

Reit, stock yields reflect risk nature

IT seems the onset of the dragon year has driven home the notion that risk and return on assets are directly correlated.

Notably, Singapore-listed real estate investment trusts (Reits), which are generally perceived to be defensive counters characterised by their lower price volatility, have yielded relatively conservative returns year-to-date as compared to their higher beta Straits Times Index (STI) peers.

According to data from Bloomberg and the Singapore Exchange (SGX), since the start of 2012, Reits – comprising 22 locally listed counters – have raked in an average return of 8.2 per cent compared to the stocks of the STI which have yielded 15.5 per cent over the same period. The average price volatility for Reits is 19.9 per cent and for the basket of STI stocks is 29.6 per cent.

Theoretically speaking, it is generally believed that the higher the risk associated with an asset, the greater its potential upside, and vice versa.

Investors can typically estimate the level of risk associated with the counter by measuring its recent volatility in price, before tailoring their investment choices to suit their risk appetites accordingly.

However, there might be variations of risk and return among the various asset classes in addition to how risk can be measured, cautioned the SGX.

For instance, risk and return can vary with the pricing and fundamentals of each asset.

In addition, investors should also be aware that historical prices and volatility numbers should not be taken as a guarantee to future performance, as history will never be representative of what the future might bring.