Andrew Baum and David Hartzell, Global Property Investment, 2011 Real estate as an asset class Andrew Baum and David Hartzell, Global Property Investment, 2011
What makes real estate attractive? It offers a reasonable return It offers low volatility It diversifies the portfolio It offers an inflation hedge Markets are inefficient
Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? UK, Return (%)Risk (%)CV Equities Gilts Property Source:IPD, PFR 2011 Returns are geometric means, annual data CV = coefficient of variation
Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? US, Return (%)Risk (%)CV Equities Treasuries Property Source: NCREIF, S&P, Barclays Capital 2011 Returns are geometric means, annual data CV = coefficient of variation
Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? Correlations, UK, EquitiesGiltsProperty Equities1-- Gilts Property
Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? Correlations, US, Equities TreasuriesProperty Equities1-- Treasuries Property
Andrew Baum and David Hartzell, Global Property Investment, 2011 Diversification? UK,
Andrew Baum and David Hartzell, Global Property Investment, 2011 Diversification? US,
Andrew Baum and David Hartzell, Global Property Investment, 2011 Diversification? UK,
Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? Return and risk, Asset classReturnRisk UK stocks UK gilts UK property11.7
Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? Correlations, UK propertyUK stocksUK gilts UK property UK stocks UK gilts
Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? A low risk portfolio – 11.5% return A medium risk/return portfolio – 13% return A high return portfolio – 14.5% return Limitations?
Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? Portfolio return Standard deviationUK propertyUK stocksUK gilts
Andrew Baum and David Hartzell, Global Property Investment, 2011 Limitations? Observed mean
Andrew Baum and David Hartzell, Global Property Investment, 2011 Limitations? 100% equities 60% property 40% gilts
Andrew Baum and David Hartzell, Global Property Investment, 2011 Limitations? Gilts Property Equities
Andrew Baum and David Hartzell, Global Property Investment, 2011 Limitations Smoothing Specific risk and sampling error –– can you buy the index? Leverage Illiquidity Fees Execution challenges