The Blended Approach to Real Estate Allocations: Performance Implications of Combining an Exposure to German Spezialfonds with Global Listed Real Estate Securities

15 Pages Posted: 25 Sep 2015

See all articles by Alex Moss

Alex Moss

University of Reading - Henley Business School; City University London - Sir John Cass Business School

Andrew Clare

City University London - Sir John Cass Business School

Steve Thomas

City University London - Sir John Cass Business School

James Seaton

City University London - Sir John Cass Business School

Date Written: September 23, 2015

Abstract

This paper seeks to increase the understanding of the performance implications for investors who choose to combine an unlisted real estate portfolio (in this case German Spezialfonds) with a (global) listed real estate element. We call this a “blended” approach to real estate allocations. For the avoidance of doubt, in this paper we are dealing purely with real estate equity (listed and unlisted) allocations, and do not incorporate real estate debt (listed or unlisted) or direct property into the process.

Our findings are that by blending a 30% global listed portfolio with a 70% allocation (as opposed to a typical 100% weighting) to Spezialfonds, the real estate allocation returns increase from 2.88% p.a. to 5.42% pa. Volatility increases, but only to 6.53%., but there is a noticeable impact on maximum drawdown which increases to 19.4%. By using a Trend Following strategy raw returns are improved from 2.88% to 6.94% p.a. , The Sharpe Ratio increases from 1.05 to 1.49 and the Maximum Drawdown ratio is now only 1.83% compared to 19.4% using a buy and hold strategy . Finally, adding this (9%) real estate allocation to a mixed asset portfolio allocation typical for German pension funds there is an improvement in both the raw return (from 7.66% to 8.28%) and the Sharpe Ratio (from 0.91 to 0.98).

Keywords: REITs, Investment Management, Portfolio Management, Real Estate, Momentum, Trend Following

Suggested Citation

Moss, Alex and Clare, Andrew D. and Thomas, Stephen H. and Seaton, James, The Blended Approach to Real Estate Allocations: Performance Implications of Combining an Exposure to German Spezialfonds with Global Listed Real Estate Securities (September 23, 2015). Available at SSRN: https://ssrn.com/abstract=2664737 or http://dx.doi.org/10.2139/ssrn.2664737

Alex Moss (Contact Author)

University of Reading - Henley Business School ( email )

Greenlands
Reading, Henley on Thames RG6 6AH
United Kingdom

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Andrew D. Clare

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Stephen H. Thomas

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 (0) 20 7040 5271 (Phone)
+44 (0) 20 7040 8881 (Fax)

James Seaton

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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