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Markets in a Minute

Visualizing the Real Estate Investment Universe

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This infographic is available as a poster.

Real Estate Investment

Real Estate Investment

This infographic is available as a poster.

Visualizing the Real Estate Investment Universe

From residential property to data centers, real estate investment covers many different sectors.

While office, retail, and residential properties may come to mind first, the investment landscape extends to property types like health care and infrastructure—two sectors that were booming in 2021 as demand for laboratory space increased and facilities underpinning the digital economy expanded.

In this Markets in a Minute from New York Life Investments, we show the scope of U.S. publicly listed real estate investment trusts (REITs) by sector.

How Do REITs Work?

Most often, REITs are publicly-listed investments on a stock exchange. These investment vehicles manage income-producing properties and provide investors exposure to the real estate industry both through the price appreciation of property assets and the income earned through mortgages or leases.

By law, roughly 90% of this taxable income must be distributed to stockholders in dividends.

For instance, an office REIT may own a number of skyscrapers and office buildings that collect leases from tenants. This income from tenants—such as Salesforce or Amazon—would then be distributed to shareholders of the office REIT.

Today, U.S. publicly-listed REITs own 503,000 properties across the country valued at $2.0 trillion.

What are the Different Types of Real Estate Investment?

U.S. listed REITs fall into roughly 17 categories, according to data from Nareit.

Below, we will show each sector based on their earnings in the first quarter of 2022 as measured by funds from operations (FFO). FFO looks at cash flow earned from operations and is considered a broad performance indicator for the industry.

SectorEarnings*
Retail$3.5B
Infrastructure$2.7B
Residential$2.4B
Industrial$1.8B
Health Care$1.8B
Apartments$1.7B
Office$1.6B
Self Storage$1.3B
Shopping Centers$1.2B
Free Standing$1.2B
Regional Malls$1.1B
Data Centers$0.9B
Specialty**$0.8B
Diversified$0.6B
Lodging/Resorts$0.5B
Single Family Homes$0.4B
Manufactured Homes$0.3B
All Equity REITs$18.0B

*Measured by Funds From Operations (FFO).
**Specialty includes gaming, outdoor advertising, farmland, and other non-traditional REIT property types. Data as of Q1 2022.

Despite thousands of storefronts being shut down during COVID-19, retail earnings remained the largest across all sectors, at $3.5 billion. In fact, earnings bounced back to pre-pandemic levels during the first quarter of 2022.

As the second largest sector, infrastructure saw $2.7 billion in earnings, rising over 47% compared to the first quarter of 2021. Infrastructure includes wireless infrastructure, fiber cables, and energy pipelines.

Residential, at $2.4 billion, is the third largest sector. Like retail, earnings have exceeded pre-pandemic levels, rising over 19% since the end of 2019.

Overall, real estate investment earnings hit a record $18 billion, driven by sectors hit hardest by the pandemic.

Key Characteristics of Real Estate Investments

Thanks to long-term leases—often between 5 and 10 years—REITs provide stable dividend earnings to investors. In 2021, the average dividend yield of U.S. REITs was 2.6%, more than double the yield of the S&P 500 at 1.2%.

In addition, they are often well-positioned during inflationary environments. As the below table shows, during periods of high inflation REITs average annualized returns were 16%. Even better, REIT earnings increased as inflation levels continued to rise.

Inflation EnvironmentU.S. REIT Price ReturnU.S. REIT Income ReturnTotal Annualized Return
High Inflation (>6.3%)5.3%10.7%16.0%
Moderate Inflation (2.0%-6.3%)6.2%6.9%13.1%
Low Inflation(<2.0%)4.9%5.1%10.0%

Source: Morningstar (Jun 2021). REIT returns represented by the FTSE Nareit Equity REITs Index from Jan 30, 1976 to Jun 30, 2021.

While REITs are often positively correlated with inflation, they often have a low correlation with equities. For this reason, they can serve as a key diversifier when markets take a turn for the worse, potentially reducing the risk profile of your portfolio.

Due to the combination of these factors, real estate investments have proven resilient, with many REITS paying higher dividends than other forms of investments.

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Markets in a Minute

What is the Success Rate of Actively Managed Funds?

For actively managed funds, the odds of beating the market over the long run are like finding a needle in a haystack.

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Actively Managed Funds

What is the Success Rate of Actively Managed Funds?

Over a 20-year period, 95% of large-cap actively managed funds have underperformed their benchmark.

The above graphic shows the performance of actively managed funds across a range of fund types, using data from S&P Global via Charlie Bilello.

Missing the Mark: Actively Managed Funds

Several factors present headwinds to actively managed funds.

  • Trading costs: First, fund managers will trade more often than passive funds. These in turn incur costs, impacting returns.
  • Cash holdings: Additionally, many of these funds hold a cash allocation of about 5% or more to capture market opportunities. Unlike active funds, their passive counterparts are often fully invested. Cash holdings can have the opposite effect than intended—dragging on overall returns.
  • Fees: Active funds can charge up to 1-2% in investment manager fees while funds that tracked an index passively charged just 0.12% on average in 2022. These additional costs add up over time.

Below, we show how active funds increasingly underperform against their benchmark over each time period.

Fund Type1 Year
% Underperformed
5 Year
% Underperformed
10 Year
% Underperformed
20 Year
% Underperformed
All Large-Cap 51879195
All Small-Cap 57718994
Large-Cap Growth 74869698
Large-Cap Value 59698587
Small-Cap Growth 80598597
Small-Cap Value 41819192
Real Estate 88627487

As we can see, 51% of all large-cap active mutual funds underperformed in a one-year period. That compares to 41% of small-cap value funds, which had the best chance of outperforming the benchmark annually. Also, an eye-opening 88% of real estate funds underperformed.

For context, Warren Buffett’s firm Berkshire Hathaway has beat the S&P 500 two-thirds of the time. Even the world’s top stock pickers have a hard time beating the market’s returns.

2020 Market Crash: A Case Study

How about active funds’ performance during a crisis?

While the case for actively managed funds is often stronger during a market downturn, a 2020 study shows how they continued to underperform the index.

Overall, 74% of over 3,600 active funds with $4.9 trillion in assets did worse than the S&P 500 during the 2020 market plunge.

Stage of 2020 CycleTime Period% Underperforming S&P 500
CrisisFeb 20 - Apr 30, 202074.2
CrashFeb 20 - Mar 23, 202063.5
RecoveryMar 24 - Apr 30, 202055.8
Pre-CrisisOct 1 2019 - Jan 31, 202067.1

Source: NBER

In better news, roughly half underperformed through the recovery, the best out of any market condition that was studied.

The Bigger Impact

Of course, some actively managed funds outperform.

Still, choosing the top funds year after year can be challenging. Also note that active fund managers typically only run a portfolio for four and a half years on average before someone new takes over, making it difficult to stick with a star manager for very long.

As lower returns accumulate over time, the impact of investing in active mutual funds can be striking. If an investor had a $100,000 portfolio and paid 2% in costs every year for 25 years, they would lose about $170,000 to fees if it earned 6% annually.

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Markets in a Minute

Ranked: The Largest Bond Markets in the World

The global bond market stands at $133 trillion in value. Here are the major players in bond markets worldwide.

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The Largest Bond Markets in the World

The Largest Bond Markets in the World

In 2022, the global bond market totaled $133 trillion.

As one of the world’s largest capital markets, debt securities have grown sevenfold over the last 40 years. Fueling this growth are government and corporate debt sales across major economies and emerging markets. Over the last three years, China’s bond market has grown 13% annually.

Based on estimates from the Bank for International Statements, this graphic shows the largest bond markets in the world.

ℹ️ Total debt numbers here include both domestic and international debt securities in each particular country or region. BIS notes that international debt securities are issued outside the local market of the country where the borrower resides and cover eurobonds as well as foreign bonds, but exclude negotiable loans.

Ranked: The World’s Top Bond Markets

Valued at over $51 trillion, the U.S. has the largest bond market globally.

Government bonds made up the majority of its debt market, with over $26 trillion in securities outstanding. In 2022, the Federal government paid $534 billion in interest on this debt.

China is second, at 16% of the global total. Local commercial banks hold the greatest share of its outstanding bonds, while foreign ownership remains fairly low. Foreign interest in China’s bonds slowed in 2022 amid geopolitical tensions in Ukraine and lower yields.

Bond Market RankCountry / RegionTotal Debt OutstandingShare of Total Bond Market
1🇺🇸 U.S.$51.3T39%
2🇨🇳 China$20.9T16%
3🇯🇵 Japan$11.0T8%
4🇫🇷 France$4.4T3%
5🇬🇧 United Kingdom$4.3T3%
6🇨🇦 Canada$4.0T3%
7🇩🇪 Germany$3.7T3%
8🇮🇹 Italy$2.9T2%
9🇰🇾 Cayman Islands*$2.7T2%
10🇧🇷 Brazil*$2.4T2%
11🇰🇷 South Korea*$2.2T2%
12🇦🇺 Australia$2.2T2%
13🇳🇱 Netherlands$1.9T1%
14🇪🇸 Spain$1.9T1%
15🇮🇳 India*$1.3T1%
16🇮🇪 Ireland$1.0T1%
17🇲🇽 Mexico*$1.0T1%
18🇱🇺 Luxembourg$0.9T1%
19🇧🇪 Belgium$0.7T>1%
20🇷🇺 Russia*$0.7T>1%

*Represent countries where total debt securities were not reported by national authorities. These figures are the sum of domestic debt securities reported by national authorities and/or international debt securities compiled by BIS.
Data as of Q3 2022.

As the above table shows, Japan has the third biggest debt market. Japan’s central bank owns a massive share of its government bonds. Central bank ownership hit a record 50% as it tweaked its yield curve control policy that was introduced in 2016. The policy was designed to help boost inflation and prevent interest rates from falling. As inflation began to rise in 2022 and bond investors began selling, it had to increase its yield to spur demand and liquidity. The adjustment sent shockwaves through financial markets.

In Europe, France is home to the largest bond market at $4.4 trillion in total debt, surpassing the United Kingdom by roughly $150 billion.

Banks: A Major Buyer in Bond Markets

Like central banks around the world, commercial banks are key players in bond markets.

In fact, commercial banks are among the top three buyers of U.S. government debt. This is because commercial banks will reinvest client deposits into interest-bearing securities. These often include U.S. Treasuries, which are highly liquid and one of the safest assets globally.

As we can see in the chart below, the banking sector often surpasses an economy’s total GDP.

Banking Sector

As interest rates have risen sharply since 2022, the price of bonds has been pushed down, given their inverse relationship. This has raised questions about what type of bonds banks hold.

In the U.S., commercial banks hold $4.2 trillion in Treasury bonds and other government securities. For large U.S. banks, these holdings account for almost 24% of assets on average. They make up an average 15% of assets for small banks in 2023. Since mid-2022, small banks have reduced their bond holdings due to interest rate increases.

As higher rates reverberate across the banking system and wider economy, it may expose further strains on global bond markets which have expanded rapidly in an era of dovish monetary policy and ultra-low interest rates.

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