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Article
Publication date: 14 September 2023

Martin Hoesli, Louis Johner and Jon Lekander

Using data spanning 145 years for Sweden, the authors investigate the benefits of holding multi-family properties for investors who aim to hedge wage growth.

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Abstract

Purpose

Using data spanning 145 years for Sweden, the authors investigate the benefits of holding multi-family properties for investors who aim to hedge wage growth.

Design/methodology/approach

The authors assess the risk-adjusted excess return that results from adding multi-family properties to a mixed-asset portfolio that aims to track wage growth. The authors also analyse the macroeconomic determinants of asset returns. Finally, the authors test whether a causal relationship exists between the growth rate of real wages and that of real net operating income.

Findings

The benefits from holding multi-family properties are the greatest for low-risk allocation approaches. For more risky strategies, the role of real estate is more muted, and it varies greatly over time. Holding real estate was most beneficial during the first two decades of the 21st century. Multi-family properties are found to be the only asset class to be positively related to wage growth. The authors show that the net operating income acts as the transmission channel between wages and property returns.

Practical implications

The paper assesses whether the growing interest of pension funds for multi-family properties is warranted in the context of a portfolio that aims to track wage growth.

Originality/value

Using long term data makes it possible to use a rolling windows approach and hence to consider multiple outcomes for an allocation strategy over a typical investment horizon. This permits to assess the dispersion of performance across several periods rather than just one as is commonly done in the literature. The results show that the conclusions that would be drawn from looking at the past two or three decades of data differ substantially from those for earlier time periods.

Details

Journal of Property Investment & Finance, vol. 42 no. 1
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 8 December 2023

Sven Rehers, Jon Lekander and Ansgar Bernhard Bendiek

This paper compares the benefits of direct international real estate investments in a mixed asset portfolio from the perspective of a passive investor with high and low bond…

103

Abstract

Purpose

This paper compares the benefits of direct international real estate investments in a mixed asset portfolio from the perspective of a passive investor with high and low bond allocation.

Design/methodology/approach

Due to high data availability and its professionalism, the Norwegian sovereign wealth fund was used as a representative example. Real estate indices from 8 countries were used for the portfolio analysis. The data were desmoothed according to Geltners’s 1993 approach.

Findings

The optimal real estate ratio in the present case is around 20–55%. However, this is strongly dependent on the bond ratio of the multi-asset portfolio. Portfolios with a high equity ratio benefit more from the additional direct real estate investments than portfolios with high bond ratios.

Research limitations/implications

A rebalancing of individual stocks and bonds was not analysed. Only indexes from MSCI (Morgan Stanley Capital International) were available.

Practical implications

Concludes that the weighting of stocks and bonds has a strong influence on the optimal real estate ratio and therefore structural changes that affect this weighting.

Originality/value

The originality of the paper lies in the analysis with different weights of stocks and bonds, the consideration of 8 real estate markets and the observation period. The results of the work highlight areas of interest for further research.

Details

Journal of Property Investment & Finance, vol. 42 no. 1
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 6 February 2017

Jon R.G.M. Lekander

The asset allocation decision for a pension portfolio needs to consider several, sometimes conflicting, aspects. Most pension managers use models and processes that are developed…

1143

Abstract

Purpose

The asset allocation decision for a pension portfolio needs to consider several, sometimes conflicting, aspects. Most pension managers use models and processes that are developed for the traditional asset classes for analyzing this problem. The purpose of this paper is to investigate how real estate is included in this process, for what purpose and how the real estate portfolio is constructed.

Design/methodology/approach

Seven individuals responsible for the asset allocation process were interviewed, and their responses were analyzed with regards to organizational options and their real estate strategy.

Findings

It was found that real estate is held for three different purposes, risk diversification, inflation hedging/liability matching and return enhancement and that the allocation has increased over time. The allocation strategy has evolved at least in part in conjuncture with the organizational structure set in place to overcome real estate market frictions.

Research limitations/implications

The interviews were geographically limited to pension funds domiciled in Sweden and Finland.

Practical implications

It is concluded that the organizational capabilities of the pension fund of handling real estate is an important consideration for the ensuing real estate portfolio.

Originality/value

The originality of this paper lies in that it is based on interviews with individuals who are responsible for the asset allocation decision at large pension funds. The findings of the paper identify areas of interest for future research.

Details

Journal of Property Investment & Finance, vol. 35 no. 1
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 7 March 2008

Martin Hoesli and Jon Lekander

This paper aims to review major changes on real estate markets in Europe and to analyse the impacts of such changes.

6328

Abstract

Purpose

This paper aims to review major changes on real estate markets in Europe and to analyse the impacts of such changes.

Design/methodology/approach

The paper provides an overview of the various equity real estate investment vehicles available to investors, with particular focus on the pros and cons of each type of vehicle. The paper also includes an analysis of the impacts of product innovation on real estate markets and on portfolio strategy.

Findings

The changes on real estate markets have led to considerable amounts of capital being allocated to the asset class. Portfolio strategies should be substantially more flexible.

Research limitations/implications

As many of the new products have been created in bullish real estate markets, it is important to assess the impacts of a market downturn on portfolio performance.

Practical implications

A good understanding of available products with their pros and cons is necessary for a sound investment strategy.

Originality/value

The paper is one of the very few papers that discuss the major institutional changes that have occurred on European real estate markets.

Details

Journal of Property Investment & Finance, vol. 26 no. 2
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 9 February 2010

Rahul Srivatsa, Andrew Smith and Jon Lekander

The purpose of this paper is to develop a more robust methodology for asset allocation for the property investment market which takes into account inherent valuation and data…

1606

Abstract

Purpose

The purpose of this paper is to develop a more robust methodology for asset allocation for the property investment market which takes into account inherent valuation and data issues.

Design/methodology/approach

The methodology applied is that of a bootstrap, borrowed from Carlstein, and is applied to an investment universe consisting of UK equities, gilts and property. The bootstrap selectively re‐samples the return time series by maintaining the economic cycle. The resulting return series is then used in the standard mean‐variance optimisation (MVO) on an unconstrained basis. Finally, a “sanity” test is applied on the correlation matrix to ensure that spurious instances do not skew the results.

Findings

The bootstrapped optimisation provides a range within which the portfolio weights can be manoeuvred instead of a static point under the standard MVO. It provides a more robust methodology for asset allocation and without giving any undue significance to one year of extreme result.

Research limitations/implications

The current analysis is based on unconstrained portfolio optimisation, with a very limited investment universe. Additionally, by conforming with the MVO methodology, normality of asset returns is implicitly assumed, which is clearly not the case in the data used. Future work will also focus on an all‐property portfolio.

Practical implications

The proposed methodology will prove to be useful for making asset allocation decisions, particularly in turbulent financial markets.

Originality/value

The paper focuses solely on bootstrapping with the IPD UK annual index and is particularly significant after one year of extremely poor performance of UK property. The results will be of use to fund managers and portfolio analysts.

Details

Journal of Property Investment & Finance, vol. 28 no. 1
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 7 September 2015

Jon R.G.M Lekander

The purpose of this paper is to explore how tenant end demand dependence and investment market segmentation, as estimated through sector type, impacts real estate portfolio…

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Abstract

Purpose

The purpose of this paper is to explore how tenant end demand dependence and investment market segmentation, as estimated through sector type, impacts real estate portfolio strategy in the context of the multi-asset portfolio.

Design/methodology/approach

The analysis is performed for six investor domeciles, for domestic and international investments over several cycles. The analysis is performed in a mean variance framework.

Findings

The findings are consistent with the hypothesis that an investor benefits from investing in real estate assets where end demand is dependent on local factors rather than global factors.

Practical implications

The efficiency of the overall multi-asset portfolio benefits from a deeper understanding of how the real estate portfolio is constructed. Locally dependent real estate, i.e. real estate that is dependent on local economic factors, tends to better support the overall portfolio than do real estate that is dependent upon global factors.

Originality/value

The paper contributes to the broader knowledge through extending earlier studies using similar methodology by extending the data series to cover the impact of the latest global financial crises, as well through extending the knowledge how the real estate portfolio should be constructed to better support the overall objectives of the multi-asset portfolio.

Details

Journal of Property Investment & Finance, vol. 33 no. 6
Type: Research Article
ISSN: 1463-578X

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