The Performance Implications of Adding Global Listed Real Estate to an Unlisted Real Estate Portfolio: A Case Study for UK Defined Contribution Funds

Moss, Alex; Farrelly, Kieran

doi:10.2139/ssrn.2616350

Cited by 2 publications

(6 citation statements)

References 7 publications

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“…The optimal allocations for the blended real estate portfolios are now presented, looking first at the in-sample allocations and then the out-of-sample results. Funds A and B were made up of pre-determined allocations to direct real estate and either cash or listed real estate, with no optimization as per Moss and Farrelly (2014;.…”

Section: Resultsmentioning

confidence: 99%

“…The findings of National Association of Real Estate Investment Trusts (2011) were confirmed by Moss and Farrelly (2014). They analysed a 70:30 blend of UK unlisted real estate funds and global listed real estate funds over the period 1998–2013, as well as a portfolio split 70:25:5 between UK unlisted real estate, global listed real estate and cash.…”

Section: Literature Reviewmentioning

confidence: 88%

“…Nonetheless, although many asset managers are aware of the benefits of including some listed real estate in their direct real estate portfolios, Moss and Farrelly (2014) Ling and Naranjo (1999) examined whether the direct real estate and REIT markets in the US were integrated with the common equity market, but only REIT markets were found to be integrated. However, other studies have found evidence of integration between direct and listed real estate (for example, Wang et al, 1997;Tuluca et al, 2000;Morawski et al, 2008;Oikarinen et al, 2011).…”

Section: Blending Direct and Listed Real Estate Investmentsmentioning

confidence: 99%

“…Nonetheless, although many asset managers are aware of the benefits of including some listed real estate in their direct real estate portfolios, Moss and Farrelly (2014) noted that most were reluctant to implement this strategy. One of the main concerns was the anticipated increase in tracking error.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The foregoing suggests that direct and listed real estate might be good long-term substitutes, but, to the authors’ knowledge, only Moss and Farrelly (2014, 2015) have considered the question of tracking error when combining direct and listed real estate into a blended portfolio, though low short-run correlations between direct and listed real estate imply that significant tracking error will be present. Meanwhile, none of the studies reviewed so far have addressed the question of which liquid assets beyond cash and listed real estate could be included within a blended real estate portfolio or the optimal combination of such assets.…”

Section: Literature Reviewmentioning

confidence: 99%

See 4 more Smart Citations

Optimal composition of hybrid/blended real estate portfolios

Ametefe

Devaney

Stevenson

2019

JPIF

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The purpose of this paper is to establish an optimum mix of liquid, publicly traded assets that may be added to a real estate portfolio, such as those held by open-ended funds, to provide the liquidity required by institutional investors such as UK defined contribution pension funds. This is with the objective of securing liquidity while not unduly compromising the risk-return characteristics of the underlying asset class. This paper considers the best mix of liquid assets at different thresholds for a liquid asset allocation, with the performance then evaluated against that of a direct real estate benchmark index. Design/Methodology/Approach: The authors employ a mean-tracking error optimisation approach in determining the optimal combination of liquid assets that can be added to a real estate fund portfolio. The returns of the optimised portfolios are compared to the returns for portfolios that employ the use of either cash or listed real estate alone as a liquidity buffer. Multivariate Generalised Autoregressive models are used along with rolling correlations and tracking errors to gauge the effectiveness of the various portfolios in tracking the performance of the benchmark index. Findings: The results indicate that applying formal optimisation techniques leads to a considerable improvement in the ability of the returns from blended real estate portfolios to track the underlying real estate market. This is the case at a number of different thresholds for the liquid asset allocation and in cases where a minimum return requirement is imposed.

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Section: Resultsmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 88%