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The Diversification Effects Of The Inclusion Of Real Estate Assets In A Canadian Investment Portfolio: A 2010 To 2018 Perspective

Peer reviewed: 
No, item is not peer reviewed.
Scholarly level: 
Graduate student (Masters)
Date created: 
Real estate investment trusts (REITs); Investment portfolio; Minimum-Variance Portfolio (Efficient Frontier); Regression analysis; Sharpe ratio; real estate mutual fund trust

This study investigates the effects of adding real estate investments such as REITs and real estate mutual funds to a Canadian equities and fixed income portfolio during the time period from 2010 to 2018. Detailed analysis has been performed to arrive at the conclusion that adding real estate funds to a Canadian investment portfolio can significantly improve the returns for the investor. Diversifying by adding real estate assets to a portfolio not only improves the return, but also lowers the overall risk of the portfolio.

Even though there is significant overlap between the constituents of the S&P TSX Composite Real Estate sector and the real estate funds, the data and analysis presented in this paper demonstrates that it is still very advisable to include real estate funds into Canadian investment portfolios.

There are many studies which have examined the effects of adding real estate investment trusts to a portfolio. However, there are fewer recent studies which have examined these effects for a Canadian investment portfolio that is not yet invested in real estate assets. This study uses the monthly returns of the S&P TSX Composite, S&P TSX REIT, the Bloomberg Canadian REIT Index (BBCREIT) and the Thompson Reuters Canadian All bond All Index (TRCAALL) in order to create an optimal tangency portfolio, including a thorough risk/return analysis, a data robustness test for different time periods from 2010 to 2018, and a regression analysis is also included.


MscFin Project-Simon Fraser University

Document type: 
Graduating extended essay / Research project
Copyright remains with the author.
Andrey Pavlov
Beedie School of Business-Segal Graduate School