Real estate portfolio construction for a multi-asset portfolio

Lekander, Jon

doi:10.1108/jpif-02-2015-0013

Cited by 16 publications

(16 citation statements)

References 23 publications

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“…As other authors did previously [14,15], we use index prices as data for our experiments. Stocks are proxied by the S&P 500 index for the US marked, by the FTSE 100 index for the UK market, and by the S&P/ASX 200 index for the Australian market.…”

Section: A Datamentioning

confidence: 99%

Optimizing Mixed-Asset Portfolios Involving REITs

Habbab

Kampouridis

Voudouris

2022

2022 IEEE Symposium on Computational Intelligence for Financial Engineering and Economics (CIFEr)

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Real Estate Investment Trusts (REITs) is a popular investment choice as it allows investors to hold shares in real estate rather than investing large sums of money to purchase real estate by themselves. Previous work studied the effectiveness of multi-asset portfolios that include REITs via an efficient frontier analysis. However, the advantages of including (both domestic and international) REITs in multi-asset portfolios, as well as analyzing all the possible combinations of asset classes, has not been investigated before. In this paper, we fill in this gap by performing a thorough investigation across 456 different portfolios to demonstrate the added value of including REITs in mixed-asset portfolios in terms of different important financial metrics. To this end, we use a genetic algorithm approach to maximize the Sharpe ratio of the portfolios. Our results show that optimization via a genetic algorithm outperforms the results obtained from a global minimum variance portfolio. More importantly, our results also show that there can be significant improvements in average returns, risk and Sharpe ratio when including REITs.

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Section: A Datamentioning

confidence: 99%

Optimizing Mixed-Asset Portfolios Involving REITs

Habbab

Kampouridis

Voudouris

2022

2022 IEEE Symposium on Computational Intelligence for Financial Engineering and Economics (CIFEr)

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“…Rehring (2012) pointed out that ignoring transaction costs, return predictability, and marketing period risk in previous studies could yield misleading results for optimal allocation in real estate. Lekander (2015) highlights the composition of the real estate portfolio (and sensitivity to local markets) influences the optimal asset allocation. This is an issue relevant to this research given the potentially lower sensitivity of long lease real estate to market conditions.…”

Section: Related Literaturementioning

confidence: 99%

Long lease real estate – a revised role for real estate in pension fund portfolios

Mansley

Wang

2021

JPIF

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PurposeLong lease real estate funds (over £15bn in Q3 2020) have emerged as an increasingly important part of UK pension fund real estate portfolios. This paper explores the reasons for their dramatic growth, their characteristics and performance.Design/methodology/approachThis study uses data for the period 2004–2020 collected directly from fund managers and from AREF/MSCI and empirical analysis to explore their characteristics and performance.FindingsPension fund de-risking and regulatory guidance have supported the dramatic growth of long lease real estate funds. Long lease real estate funds have delivered strong risk-adjusted returns relative to both balanced property funds (with shorter lease terms) and the wider property market. This relative performance has been particularly strong when wider property market performance has been weak. Long lease funds have objectives aligned with liability matching and their performance suggests they are lower risk (more bond-like) investments. In addition, our analysis highlights they are far less responsive to the wider property market than balanced funds. However, they are not significantly different from balanced property funds in terms of their short-term relationship with gilt yield movements.Practical implicationsFor pension funds and other investors the paper highlights that long lease real estate funds offer a different exposure than balanced property funds. Long lease funds have objectives more closely aligned to the overall objectives for pension fund investment but are not significantly more reliable than balanced property funds in the short-term as a liability hedge. For real estate fund managers, occupiers, developers and others active in the real estate market, the paper highlights why these funds have been (and are likely to remain) attractive to investors leading to substantial demand for long lease real estate investments.Originality/valueThis is the first study to review this increasingly important part of the UK real estate fund universe.

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“…Therefore, it was adjusted for valuationsmoothing using the statistical de-smoothing filter prescribed by Geltner (1993) with a firstorder auto-regressive de-smoothing parameter of α 5 0.5. This method has been utilised in various previous studies such as Hoesli et al (2004), Newell and Lee (2011b), Lekander (2015), Marzuki and Newell (2017), amongst others, as part of their research using valuation-derived direct property data series. This calibration procedure, which was aimed to reduce the impact of temporal lag and autocorrelation, resulted in one-quarter of the total return data being consumed in the construction of the de-smoothed global non-listed infrastructure total return series, seeing Q3:2008-Q2:2009 as the 11-year analysis timeframe.…”

Section: Data Sourcesmentioning

confidence: 99%

A global investment opportunity in non-listed infrastructure for institutional investors

Marzuki

Newell

2020

JPIF

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PurposeInfrastructure investment is one of the few high-calibre real alternative assets with a strong prominence in the portfolios of institutional investors, especially those with a liability-driven investment strategy. This has seen increased institutional investor interest in infrastructure for reasons such as diversification benefits and inflation hedging abilities, resulting in the substantial growth in non-listed and listed investment products offering access to the infrastructure asset class, and complementing the existing route via direct investment. This paper aims to assess the investment attributes of non-listed infrastructure over Q3:2008–Q2:2019, compared with other global listed assets of infrastructure, property, stocks and bonds.Design/methodology/approachQuarterly total returns were derived from the valuation-based MSCI global non-listed quarterly infrastructure asset index over Q2:2008–Q:2019, which were then filtered to decrease the valuation smoothing effects. A similar set of returns data was also collected for the other global asset classes. The average annual return, annual risk, risk-adjusted performance and portfolio diversification benefits for non-listed infrastructure and other asset investment classes were then computed and compared. Lastly, a constrained optimal asset allocation analysis was performed to validate the performance enhancement role of global non-listed infrastructure in a mixed-asset investment framework.FindingsGlobal non-listed infrastructure delivered the strongest average annual total return performance, outperforming the other asset classes and provided investors with total returns that linked strongly with inflation. Global non-listed infrastructure also provided investors with one of the least volatile investment returns because of its ability to ensure predictable total returns delivery. This means that on the Sharpe ratio risk-adjusted return basis, non-listed infrastructure was also the strongest performing asset. This performance was also delivered with significant portfolio diversification benefits with all assets, resulting in non-listed infrastructure contributing to the mixed-asset portfolios across the entire portfolio risk spectrum.Practical implicationsAside from better risk-return trade-offs, institutional investors are getting more secular with their portfolios for alternative assets that are able to provide other investment benefits such as predictable long-term performance and inflation-linked returns. A further improvement in performance and diversification benefits could be achieved by enriching existing investment portfolios with real alternative assets, one of which is the infrastructure asset class. For institutional investors, having exposure to and being part of the development, delivery and management of infrastructure assets are important, as they are one of the few real assets having considerable significance in the context of society, economy and investment needs.Originality/valueThis is the first research paper that empirically investigates the investment attributes of the non-listed infrastructure at a global level. This research enables empirically validated, more informed and practical decision-making by institutional investors in the infrastructure asset class, especially via the non-listed pathway. The ultimate aim of this paper is to empirically validate the strategic role of non-listed infrastructure as an important alternative asset in the institutional real asset investment space, as well as in the overall portfolio context.

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Real estate portfolio construction for a multi-asset portfolio

Cited by 16 publications

References 23 publications

Optimizing Mixed-Asset Portfolios Involving REITs

Optimizing Mixed-Asset Portfolios Involving REITs

Long lease real estate – a revised role for real estate in pension fund portfolios

A global investment opportunity in non-listed infrastructure for institutional investors

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