Do Reits Generate Better Performance Than Etfs in Hong Kong Market?

Do REITs Generate Better Performance than ETFs in Hong Kong Market? [Pick the date]

Do REITs Generate Better Performance than ETFs in Hong Kong Market?

FINC 461 Financial Research Method II

ABSTRACT: By using different financial approaches to access the performance of Real Estate Investment Trusts in comparison with similar portfolio, the Exchange Traded Fund, we are able to give implication that REITs generally perform better than ETFs in the Hong Kong Market. Approaches used in this paper include comparison of return and volatility, Treynor Ratios and Sharpe Ratios.

Leong Ka Man, Cynthia (BA701006) Sun Ieng Ieng, Annie 2010-2011 (BA803055)

INTRODUCTION

Real Estate Investment Trust (REIT) is an investment scheme that invests in a portfolio of income-generating real estate like shopping malls, offices, hotels, etc. It allows investors an opportunity to invest in real estate even if they do not have enough capital to buy properties themselves. As the return of REIT is subject to the performance of property market, investments in REIT may expose less to stock market fluctuation. But does this imply that REIT investments are safer or even better than other alternatives? In this paper we are going to compare a portfolio of REITs with another portfolio similar in nature and size, Exchange Traded Funds (ETF). ETF acts as mutual funds like REIT, not in the field of real estate but in stocks, commodities or bonds that are the benchmark to be tracked by ETF. Here we use only physical ETFs that directly buy assets needed to replicate the composition of their benchmark. Comparison of the two portfolios will be based on volatilities of their daily excess return to market premium, i.e. beta in CAPM, as well as risk-adjusted returns computed by Treynor Ratio and Sharpe Ratio. Beta provides a view of the portfolio’s return and risk. Higher beta does not necessarily imply better performance as this higher return exists at the cost of higher risk. Therefore we are...