The secrets of investing in REITs?

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REITs

REITs, short for Real Estate Investment Trusts, can be simply understood as a product that distributes rental income. Over the past 10 years, the US region has offered the highest investment cost-performance. Looking at industry categories specifically, data centers have shown the most advantage. So if it's both the US and data centers, does that mean, even if you want stable returns, it's best to collect rent from tech companies? Let's hear what The Wall Street Journal column has to say.

The author, Derek Horstmeyer, included all REITs and exchange-traded funds in the sample, dating back to the mid-1980s at the earliest.

The research found that, in terms of region, US REITs had an average annualized return of 7.08% over the past 10 years, with an average volatility of 18.25%. In Asia, returns were 2.33% with volatility at 15.10%. Europe lagged far behind, with only a 1.23% return and volatility up to 23.56%. These numbers show that the US offers the highest cost-performance advantage, while Europe is the worst place for investment. So, why are returns in Europe low while volatility is so high? Jason hasn’t been to Europe and isn’t familiar with local conditions. If any readers know the reason, feel free to comment and share your thoughts.

The study then further categorizes US REITs into residential, commercial real estate, data centers, and infrastructure. Note that the infrastructure here refers not to AI data centers, but to power grids, gas pipelines, and water resources—don't get them mixed up.

The article mentions that US data center REITs had an average annualized return of 13.75% over the past decade, with average volatility of 21.36%, making them the highest returning among the four types of REITs. Importantly, although the AI boom has boosted recent performance, the research found that data center REITs were already outperforming other categories prior to 2023, before this wave of AI data center hype. So, the conclusion that data centers are the leader is supported over the long term.

Ranked second are commercial real estate REITs, with an annualized return of 10.18% and volatility of 19.30%. Infrastructure yields 9.51% with volatility at 18.20%. Residential is last, with only a 7.05% annualized return but volatility as high as 19.47%.

Now, let's ignore the risk-free rate and benchmark. We'll simply divide return by volatility to compare which sector has the highest return per unit of risk.

After calculation, data centers lead with a return-to-volatility ratio of 0.64, far ahead. Commercial real estate is at 0.53, infrastructure at 0.52—these two are roughly on par. Residential lags behind at only 0.36.

So, whether in absolute or relative terms, this research sends two signals.

First, regional allocation of REITs significantly affects outcomes, with the US showing a clear advantage over the past 10 years.

Second, not all categories have the same returns, and differences in property types show diverging long-term results. Data centers are clearly the frontrunner.

So, for those planning to allocate to REITs, make sure to identify the right direction for your investments. Don't accidentally end up buying European residential REITs by mistake.

Alright, now for Bloomberg's Top 5 Tech News:

Number 5: Power consumption in AI data centers is highly volatile. Batteries, generators, and cooling systems frequently fail, wearing out much faster than expected. Issues like equipment cracking and electrical arcing have already delayed the launch of some projects, intensifying industry cost and grid stability concerns.

Number 4: Western Digital CEO Irving Tan stated that the market had excessive expectations. Despite revenue growing over 40%, the stock price plunged as much as 22% after the financial report. AI continues to drive strong demand for storage, and the company is launching a new 40TB product, but profit margins still lag behind Seagate Technology.

Number 3: Multiple suicide incidents occurred within the US Cyber Command within a month, drawing attention from the Pentagon and Congress. Factors like chronic overwork, staff shortages, and inadequate psychological support have been cited as causes. The command has launched an investigation and applied for special funding to strengthen mental health support.

Number 2: Boosted by Intel's 216% stock price surge, SoftBank’s holdings have seen an unrealized gain of up to $8.5 billion, partially offsetting the impact of stagnant OpenAI valuation. The quarterly net profit decline was less than expected. Masayoshi Son is still increasing his investments in AI data centers globally, while the OpenAI IPO may be postponed to 2027.

Number 1: OpenAI’s first consumer hardware will feature a donut-shaped design with movable components, priced above $300 and planned for release in 2027. This smart-speaker-like device aims to distinguish itself from Apple’s designs, as the two sides are currently in court over trade secret litigation.