The investment attributes of Mexico REITs as a listed property investment vehicle
| Date | 04 September 2020 |
| Published date | 04 September 2020 |
| Pages | 408-421 |
| DOI | https://doi.org/10.1108/JPIF-05-2020-0048 |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
| Author | Muhammad Jufri Marzuki,Graeme Newell |
The investment attributes of
Mexico REITs as a listed property
investment vehicle
Muhammad Jufri Marzuki and Graeme Newell
Department of Economics, Finance and Property,
Western Sydney University School of Business, Parramatta, Australia
Abstract
Purpose –Mexico REITs are a significant and important REIT market, both in a regional and in emerging
property market context. As one of the few emerging economies in the world with an active REIT market,
Mexico REITs are specifically designed to provide an effective pathway to participate in the investment
opportunities offered by the Mexico commercial property market for both domestic and international investors.
Importantly, Mexico REITs provide additional property investment benefits such as a high degree of
transparency, governance and liquidity. The main focus of this research is to highlight the significance of
Mexico REITs and assess their performance dynamics, as well as the added-value benefits of Mexico REITs in
mixed-asset investment portfolios.
Design/methodology/approach –Using monthly totalreturns, the risk-adjusted performance and portfolio
diversification potential of Mexico REITs over April 2011–December 2019 were assessed. A constrained mean-
variance portfolio optimisation framework was used to develop a three-asset portfolio scenario using the
historical returns, risk and correlation of Mexico REITs and the other two major financial assets.
Findings –Despite being more volatile than the mainstream asset classes, Mexico REITs delivered the
strongest risk-adjusted performance versus stocks and bonds over April 2011–December 2019, which was
made possible by the high premium of their total return performance. Notably, Mexico REITs offered excellent
diversification potential with bonds, whilst demonstrating a marginal positive correlation with the stock
market. These investment attributes of Mexico REITs have brought immediate benefits towards their ability to
add value to the Mexico mixed-asset portfolio fabric across a wide portfolio risk–return spectrum.
Practical implications –Whilst their initial establishment in 2004 was considered unsuccessful, the ongoing
regulatory improvements have been pivotal in providing a supportive investment environment to nurture the
organic growth of Mexico REITs. This now sees the Mexico REIT market as an exemplar of success for REIT
establishments amongst its peers in the Latin American region, as well as for emerging economies worldwide.
Mexico REITs are now an important REIT market, as the second largest emerging REIT market in the world.
The empirical investigation of this research has established the investment attributes of Mexico REITs as a
listed property investment vehicle. The strong risk-adjusted performance of Mexico REITs compared to stocks
and bonds sees Mexico REITs contributing to the mixed-asset portfolio across the portfolio risk–return
spectrum. This is particularly important as it provides insights into the broader strategic implications of
Mexico REITs as an effective, transparent and tax-efficient conduit for high-quality Latin American property
exposure in a liquid format.
Originality/value –This paper is the first published empirical research that elucidates the investment
attributes of Mexico REITs, highlighting their significance, risk-adjusted and portfolio performance
enhancement role as an emerging REIT market. The main outcome of this research enables empirically
validated, more informed and practical property investment decision-making regarding the strategic role of
Mexico REITs in an investment portfolio.
Keywords Mexico, REITs, FIBRAs, Risk-adjusted returns, Portfolio diversification, Emerging market
Paper type Research paper
Introduction
Real estate investment trusts (REITs) are an important property investment vehicle, having
been a major source of liquidity for many property markets globally, especially amongst the
emerging property markets. This sees over 800 REITs globally in more than 30 countries,
with a total market capitalisation of over $2 trillion in 2019. From an emerging REIT market
perspective, there are 222 active vehicles operating across 15 emerging countries and account
for around 5% of the size of the global REIT market (EPRA, 2019a). This increasingly
JPIF
39,4
408
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 6 May 2020
Revised 1 July 2020
Accepted 1 July 2020
Journal of Property Investment &
Finance
Vol. 39 No. 4, 2021
pp. 408-421
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-05-2020-0048
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