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Japanese REITs better than traditional assets: GPIF report

The Tokyo Stock Exchange REIT Index has outperformed the benchmark Topix so far in 2021.
The Sumida River flows through Tokyo, Japan. Image: Toru Hanai, Bloomberg
Investments in Japanese real estate investment trusts are now more attractive than traditional financial assets such as domestic stocks and bonds thanks to the Bank of Japan’s unprecedented monetary easing, according to a report by staff of the world’s largest pension fund.

Japan’s Government Pension Investment Fund employees concluded in the report released Sept. 10 that portfolio performance could be enhanced by managing J-REITs as a separate asset class. The GPIF, which has 192 trillion yen ($1.7 trillion) of assets under management, said the report is independent of its official position.

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So far in 2021, the Tokyo Stock Exchange REIT Index has outperformed the benchmark Topix. Japan’s publicly traded REIT market marked its 20th anniversary last week.

Between 2003 and 2015, J-REITs were a “high-risk, high-return” investment, but since the expansion of BOJ’s stimulus in 2016, when negative interest rates were introduced, they became a “low risk, high return” investment that is “extremely attractive,” the report said.

The GPIF had 0.7% of its total portfolio in alternative investments such as real estate, infrastructure, and private equity as of March 31.

2003-2015 2003-2015 2016-2021 2016-2021
Return Volatility Return Volatility
TSE REIT Index (Total Return) 10.9% 20% 8.6% 13.8%
Topix (Total Return) 8.6% 18% 7.7% 15.7%
Nomura Bond Performance Index 1.7% 1.9% 0.9% 2%

Source: Government Pension Investment Fund

Historical data showed that a portfolio including J-REITs had a higher return for the same amount of risk, compared to a portfolio that only included so-called traditional assets such as stocks and bonds. The GPIF said the paper is the result of research by its staff, and does not represent its official position.

© 2021 Bloomberg L.P.

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