Indeed, according to James Beaumont, Head Natixis Global Asset Management’s Portfolio Research & Consulting Group, on its first cut numbers for the second quarter of 2016, conservative portfolios had a 10% exposure, moderate portfolios 8% and aggressive portfolios. 3%.
As a result of the markdowns, not only will conservative portfolios be hardest hit, Beaumont said, they are also least prepared to recover from the drawdown.
This begs a third question and the one that bears most thought for portfolio constructors: what is one’s property allocation designed to do?
Richard Philbin, CIO Wellian Investment Management property says for long term investors, property has been a great asset class that has, and continues, to provide a good source of diversified income.
But, he said, there are a lot of people that have gone into it as a replacement for a bond allocation that is no longer providing a sufficient yield and, he added, have not given sufficient thought to the risks attached.
“There are a lot of different ways of looking at risk. Many people have looked at property from a capital risk point of view and thus moved into it without giving enough thought to the liquidity risks attached. That is part of what you are seeing now,” he said.
“People often only see the risk when things are going down, not when they are going up,” he added.
And, that is where the broader problem comes in, in a world where the risk free rate is zero and income is in ever greater demand, it is understandable that so much money has flowed into property funds. What is going to be harder to justify is why it is a good idea to be running for the hills now.
