Real Estate Investment Trusts (REITS)
REITS can be volatile
As they are quoted on the stock market, REITS values can be volatile. This is because, as well as REITs having their own Net Asset Value (NAV), they also have a share price value, which of course, fluctuates. Even though there is a ready market for buying and selling shares, the underlying property is not so easy to trade and this can significantly affect both the NAV and the share price.
REITs prices may fall simply as a result of negative sentiment about the property sector even if actual property values hold steady. In other words, despite the fact that the asset is the same, the psychology means that share prices have fallen - something that cannot happen when investing direct into bricks and mortar.
REITs are focussed more on growth than income, which is a good trait overall but when it comes to the property sector, many investors are looking for an income - for which a straight forward property fund may make more sense.
The term to describe how closely investments are linked to the stock market - or the extent to which they move in the same direction as the stock markets - is 'correlation'. REITs have around a 60% correlation compared to standard bricks and mortar funds where the correlation is around 20%.
How you can avoid tax entirely on your REIT
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