But conversations have changed dramatically since the start of the latest global financial crisis and now we seem to talk about equities or bonds, equity-like bonds, not holding cash that will lose you money in real terms…and then there’s property.
Old asset; renewed interest
Equity returns were flat over the first decade of this century though they have rebounded heavily since; bonds have had a good run of it for the past 30 years (really?) and have done particularly well since the world fell out of love with anything deemed slightly risky.
Now it is bonds’ turn to have a tough time and with interest rates and inflation still at record lows, property is the next cab off the block rather than cash.
This is not a complete list by any means, but given today’s client needs, how is this as a list of positives for property as an investment? A lack of correlation to equities and bonds; the ability to provide an income; a visibility of asset; the ability to generate returns and reduce volatility.
On the continent and up in the Nordic regions, there is a great deal more bullishness around property as our sister magazine, Expert Investor Europe, has found.
As its online editor, Will Jackson wrote recently: “Sentiment on global property securities has been at bullish levels since April 2012, as calculated by the Expert Investor Europe Manager Sentiment Survey.
“The global property reading rose from 40 in April, to 50 last month (see chart). Such a reading – the highest recorded since December 2006 – indicates that a strong majority of fund managers expected the asset class to return more than 5% over the following 12 months.
He found the same at the Expert Investor Nordic event. When asked which asset class they favoured outside equities, all the fund managers present said they would choose either property or land.
European boost
This is backed up by a mumber of recent hires including Axa Real Estate appointing Nathalie Charles as regional head of asset management and transactions for Southern Europe and Schroders recruiting Thomas Guyot as its new head of property investment, France.
So sentiment may be up but what about their role in a portfolio?
Deutsche Asset & Wealth Management Global Financial Institute has just published a paper on the performance of direct investment in real assets, specifically timberland and farmland, energy infrastructure and commercial real estate.
Of all three, its author concluded: “Investing in these real asset classes would have provided significant diversification benefits relative to a traditional portfolio consisting of only public equities and government bonds, without evidence of deteriorating overall performance.”
A further positive from the paper’s author, KJ Martijn Cremers, is its ability to also lower volatility within a mixed-asset fund without negatively affecting returns.
He wrote: “Based on the longest time period considered of 1978-2012, adding real assets to the equity/bond portfolios would have resulted in significantly lower volatility but would have left the average returns largely identical.”
How do you allocate to property? Let us know in the comments box below
Diversification and lower volatility are huge benefits but, obviously, not the only ones and the same paper goes on to pick out the “significant challenges of investing in real assets include illiquidity, generally long holding periods, and information uncertainty”.
It also commented that compared to a traditional portfolio of equities and bonds real estate showed significant downside risk and with the exception of the first nine years, it did not provide any inflation hedging benefits over its full 1978-2012 time period.
So where can investors look, particularly those investors who remember the lack of liquidity of 2007/2008 when funds that typically held 10% in cash to pay back redeeming investors were found out?
Win some; lose some
Open-ended property funds that issue and buy back securities are still equity funds so investors are looking for further diversification. Listed property trusts and Reits fall into the same category.
The answer is a true blue bricks and mortar fund run by a firm and a manager with a tradition of managing property such as Aviva Investors (thanks to its Morley heritage), Henderson Global Investors and M&G.
The sentiment survey referred to above is a bullish one from 25 fund management groups; there is plenty of anecdotal evidence from wealth managers talking about moving an allocation into property – in fact Investec Wealth & Investment is already moving across £500m of its private client investments; commercial property analysts are also becoming more positive (or less negative depending on where you look) about prospects globally.
Property ticks a lot of boxes for investors right now but still has a great deal of negatives…but then again so does every other asset class they have today to look at so I get the impression it won’t be too long before property ticks enough boxes for retail investors to get involved once again.
