Evaluating the effectiveness of common structures in property portfolio construction

A good portfolio structure enables an investor to diversify more effectively and understand systematic influences on their performance. However, in the property market, the choice of structure is affected by data constraints and convenience. Using individual return data, this study tests the hypothesis that some common structures in the UK do not explain a significant amount about property returns. It is found that, in the periods studied, not all the structures were effective and, for the annual returns, no structures were significant in all periods. The results suggest that the drivers represented by the structures take some time to be reflected in individual property returns. They also confirm the results of other studies in finding property type a much stronger factor in explaining returns than regions.

The impact of real estate on the mixed-asset portfolio in periods of financial stress

The case for holding real estate in the mixed-asset portfolio is typically made on its stabilising effect as a result of its diversification benefits. However, portfolio diversification often fails when it is most needed, i.e. during periods of financial stress. In these periods, the variability of returns for most asset classes increases thus reducing the stabilising effect of a diversified portfolio. This paper applies the approach of Chow et al (1999) to the US domestic mixed-asset portfolio to establish whether real estate, represented by REITs, is especially useful in times of financial stress. To this end monthly returns data on five assets classes: large cap stocks, small cap stocks, long dated government bonds, cash (T-Bills) and real estate (REITs) are evaluated over the period January 1972 to December 2001. The results indicate that the inclusion of REITs in the mixed-asset portfolio can lead to increases or decreases in returns depending on the asset class replaced and whether the period is one of calm or stress. However, the inclusion of REITs invariably leads to reductions in portfolio risk that are greater than any loss in return, especially in periods of financial stress. In other words, REITs acts as a stabilising force on the mixed-asset portfolio when it is most needed, i.e. in periods of financial stress.

The return due to diversification of real estate to the US mixed-asset portfolio

Booth and Fama (1992) observe that the compound return and so the terminal wealth of a portfolio is greater than the weighted average of the compound returns of the individual investments, a difference referred to as the return due to diversification (RDD). Thus assets that offer high RDD should be particularly attractive investments. This paper test the proposition that US direct real estate is such an asset class using annual data over the period 1951-2001. The results show that adding real estate to an existing mixed-asset portfolio increases the compound return and so the terminal wealth of the fund. However, the results are dependent on the percentage allocation to real estate and the asset class replaced.

When does direct real estate improve portfolio performance?

For over twenty years researchers have been recommending that investors diversify their portfolios by adding direct real estate. Based on the tenets of modern portfolio theory (MPT) investors are told that the primary reason they should include direct real estate is that they will enjoy decreased volatility (risk) through increased diversification. However, the MPT methodology hides where this reduction in risk originates. To over come this deficiency we use a four-quadrant approach to break down the co-movement between direct real estate and equities and bonds into negative and positive periods. Then using data for the last 25-years we show that for about 70% of the time a holding in direct real estate would have hurt portfolio returns, i.e. when the other assets showed positive performance. In other words, for only about 30% of the time would a holding in direct real estate lead to improvements in portfolio returns. However, this increase in performance occurs when the alternative asset showed negative returns. In addition, adding direct real estate always leads to reductions in portfolio risk, especially on the downside. In other words, although adding direct real estate helps the investor to avoid large losses it also reduces the potential for large gains. Thus, if the goal of the investor is offsetting losses, then the results show that direct real estate would have been of some benefit. So in answer to the question when does direct real estate improve portfolio performance the answer is on the downside, i.e. when it is most needed.

Different risk measures: different portfolio compositions?

Traditionally, the measure of risk used in portfolio optimisation models is the variance. However, alternative measures of risk have many theoretical and practical advantages and it is peculiar therefore that they are not used more frequently. This may be because of the difficulty in deciding which measure of risk is best and any attempt to compare different risk measures may be a futile exercise until a common risk measure can be identified. To overcome this, another approach is considered, comparing the portfolio holdings produced by different risk measures, rather than the risk return trade-off. In this way we can see whether the risk measures used produce asset allocations that are essentially the same or very different. The results indicate that the portfolio compositions produced by different risk measures vary quite markedly from measure to measure. These findings have a practical consequence for the investor or fund manager because they suggest that the choice of model depends very much on the individual’s attitude to risk rather than any theoretical and/or practical advantages of one model over another.

The case for REITs in the mixed-asset portfolio in the short and long run

The poor performance of the Stock Market in the US up to the middle of 2003 has meant that REITs are increasingly been seen as an attractive addition to the mixed-asset portfolio. However, there is little evidence to indicate the consistency of the role REITs should play a role in the mixed-asset portfolio over different investment horizons. The results highlight that REITs do play a significant role over both different time horizons and holding periods. The findings show that REITs attractiveness as a diversification asset increase as the holding period increases. In addition, their diversification qualities span the entire efficient frontier, providing return enhancement properties at the lower end, switching to risk reduction qualities at the top end of the frontier.

Real estate in the mixed-asset portfolio: the question of consistency

The recent poor performance of the equity market in the UK has meant that real estate is increasingly been seen as an attractive addition to the mixed-asset portfolio. However, determining whether the good return enjoyed by real estate is a temporary or long-term phenomenon is a question that remains largely unanswered. In other words, there is little or no evidence to indicate whether real estate should play a consistent role in the mixed-asset portfolio over short- and long-term investment horizons. Consistency in this context refers to the ability of an asset to maintain a positive allocation in an efficient portfolio over different holding periods. Such consistency is a desirable trait for any investment, but takes on particular significance when real estate is considered, as the asset class is generally perceived to be a long-term investment due to illiquidity. From an institutional investor’s perspective, it is therefore crucial to determine whether real estate can be reasonably expected to maintain a consistent allocation in the mixed-asset portfolio in both the short and long run and at what percentage. To address the question of consistency the allocation of real estate in the mixed-asset portfolio was calculated over different holding periods varying from 5- to 25-years.

Chronic disease risk associated with different dietary saturated fatty acids

This chapter compares the risks of chronic disease, and cardiovascular disease in particular, associated with consumption of different saturated fatty acids. Emphasis is placed on the effects of stearic acid as this has potential to replace trans fatty acids in certain manufactured food products. The chapter first reviews the effects of individual saturated fatty acids on blood lipids, including cholesterol, as these are commonly used as markers of disease risk. It then looks directly at evidence in relation to health outcomes. Finally, recent evidence specifically on the effect of stearic acid relative to other fatty acids, including trans fatty acids, is summarised.

Effects of dietary polyunsaturated fatty acid supplementation on fatty acid composition in muscle and subcutaneous adipose tissue of lambs

Lambs (n = 48) were used in a 2 × 2 factorial arrangement of treatments to evaluate effects of inclusion of oil containing PUFA in high-concentrate diets (with or without) and duration of oil supplementation (pre- vs. postweaning) on CLA concentration of muscle and adipose tissue. Lambs were fed preweaning creep diets (with or without oil) corresponding to the dietary lactation treatment diet (with or without oil) of the dam. Dams blocked by lambing date and rearing type were randomly assigned to 1 of 2 lactation dietary treatments with or without oil supplementation. Creep diets contained approximately 70% concentrate and 30% roughage and were provided to lambs for ad libitum intake. At weaning (58.7 ± 2.5 d of age), lambs (n = 48) were randomly assigned within preweaning treatment groups to 1 of 2 postweaning dietary treatments (with or without oil) and 16 pens in a randomized block design, blocked by sex and BW. Postweaning diets were formulated to contain approximately 80% concentrate and 20% roughage and were fed once daily for ad libitum intake. Soybean and linseed oil (2:1, respectively) replaced ground corn and provided 3% additional fat in pre- and postweaning diets. Lambs were slaughtered at 60.3 ± 4.2 kg of BW. A subcutaneous fat (SQ) sample was obtained within 1 h postmortem and a LM sample at the 12th rib was obtained 24 h postmortem, and both were analyzed for fatty acid profile. Feedlot performance and carcass measurements were not affected (P ≥ 0.26) by oil supplementation. Total CLA content of LM and SQ was not affected (P ≥ 0.08) by oil supplementation pre- or postweaning, but trans-10, cis-12 CLA was greater (P = 0.02) in SQ from lambs supplemented with oil postweaning. Total PUFA content in LM was greater (P = 0.02) in lambs supplemented with oil pre- or postweaning as a result of increased concentrations of 18:2cis-9, cis-12 and longer chain PUFA. Conversely, pre- and postweaning oil supplementation resulted in less (P = 0.04) MUFA content in LM. Only postweaning oil supplementation increased (P = 0.001) SQ PUFA content. Feeding oils containing PUFA to lambs pre- and postweaning did not increase CLA content of muscle, whereas postweaning oil supplementation minimally increased CLA concentration of SQ fat. Inclusion of soybean and linseed oil in pre- and postweaning diets increased total PUFA content of SQ fat and muscle tissue without adversely affecting growth performance or carcass characteristics.

Single nucleotide polymorphisms at the ADIPOQ gene locus interact with age and dietary intake of fat to determine serum adiponectin in subjects at risk of the metabolic syndrome

Background: Adiponectin gene expression is modulated by peroxisome proliferator–activated receptor γ, which is a transcription factor activated by unsaturated fatty acids. Objective: We investigated the effect of the interaction between variants at the ADIPOQ gene locus, age, sex, body mass index (BMI), ethnicity, and the replacement of dietary saturated fatty acids (SFAs) with monounsaturated fatty acids (MUFAs) or carbohydrates on serum adiponectin concentrations. Design: The RISCK (Reading, Imperial, Surrey, Cambridge, and Kings) study is a parallel-design, randomized controlled trial. Serum adiponectin concentrations were measured after a 4-wk high-SFA (HS) diet and a 24-wk intervention with reference (HS), high-MUFA (HM), and low-fat (LF) diets. Single nucleotide polymorphisms at the ADIPOQ locus −11391 G/A (rs17300539), −10066 G/A (rs182052), −7734 A/C (rs16861209), and +276 G/T (rs1501299) were genotyped in 448 participants. Results: In white Europeans, +276 T was associated with higher serum adiponectin concentrations (n = 340; P = 0.006) and −10066 A was associated with lower serum adiponectin concentrations (n = 360; P = 0.03), after adjustment for age, BMI, and sex. After the HM diet, −10066 G/G subjects showed a 3.8% increase (95% CI: −0.1%, 7.7%) and G/A+A/A subjects a 2.6% decrease (95% CI: −5.6%, 0.4%) in serum adiponectin (P = 0.006 for difference after adjustment for the change in BMI, age, and sex). In −10066 G/G homozygotes, serum adiponectin increased with age after the HM diet and decreased after the LF diet. Conclusion: In white −10066 G/G homozygotes, an HM diet may help to increase adiponectin concentrations with advancing age. This trial was registered at clinicaltrials.gov as ISRCTN29111298.

A review of the evidence for the effects of total dietary fat, SFA, MUFA and n-6 PUFA on vascular function, endothelial progenitor cells and microparticles

Vascular dysfunction is recognised as an integrative marker of CVD. While dietary strategies aimed at reducing CVD risk include reductions in the intake of SFA, there are currently no clear guidelines on what should replace SFA. The purpose of this review was to assess the evidence for the effects of total dietary fat and individual fatty acids (SFA, MUFA and n-6 PUFA) on vascular function, cellular microparticles and endothelial progenitor cells. Medline was systematically searched from 1966 until November 2010. A total of fifty-nine peer-reviewed publications (covering fifty-six studies), which included five epidemiological, eighteen dietary intervention and thirty-three test meal studies, were identified. The findings from the epidemiological studies were inconclusive. The limited data available from dietary intervention studies suggested a beneficial effect of low-fat diets on vascular reactivity, which was strongest when the comparator diet was high in SFA, with a modest improvement in measures of vascular reactivity when high-fat, MUFA-rich diets were compared with SFA-rich diets. There was consistent evidence from the test meal studies that high-fat meals have a detrimental effect on postprandial vascular function. However, the evidence for the comparative effects of test meals rich in MUFA or n-6 PUFA with SFA on postprandial vascular function was limited and inconclusive. The lack of studies with comparable within-study dietary fatty acid targets, a variety of different study designs and different methods for determining vascular function all confound any clear conclusions on the impact of dietary fat and individual fatty acids on vascular function.