How The Role Of Property In A Multi-Asset Portfolio Has Been Affected By The Credit Crunch (2014)
The existing literature argues property’s role in a multi-asset portfolio to be a means of risk reduction opposed to a method of returns. However, with the recent credit crunch having an adverse effect on the property market, this study will look into the affect it has had upon property’s role. To reach this finding, a combination of primary and secondary data will be used. The secondary data was obtained through a literature review and the primary data from interviews and a questionnaire.
The findings were that the credit crunch has left the UK property in a position where it can offer investors opportunity to make capital gains and a secure income through rents. This has led to property’s role now being mainly focused on returns but still included as a means of risk reduction. In a multi-asset portfolio an investor will likely include property to diversify and better their overall returns. However, with property values falling, it is likely investors were wishing to pull out of this asset class, cut their losses and venture elsewhere due to their risk adverse attitudes.
A negative correlation when comparing property with stocks and bonds makes the later pair appears the way forward. Reason being; they should theoretically be outperforming the current property market rectifying diversification in a multi-asset portfolio. If investors make this decision and reduce the amount of real estate, levels of diversification will decrease, increasing specific risk.
The chance of disposing their property is extremely slim however because of property’s illiquidity being further extenuated by a market downturn. Property is evidently not offering the attributes investors’ want, yet they are unable to dispose of this unwanted asset. This puts investors in a very difficult situation of being left with a depreciating asset in their multi-asset portfolio.
A possible solution to this would be identifying potential emerging markets, such as Latin America and India, which may offer the desired benefits currently unattainable in the UK. So with property still existing amongst UK fund managers’ portfolios the role it now offers must be determined. This dissertation will be based on three key assumptions namely:
- Investors’ main reason for including property in a multi-asset portfolio is to reduce risk
- Due to the poor performance of property in recent years, investors are reducing the property exposure in a portfolio and replacing it with more traditional methods such as bonds
- Even with the recession being a global problem, certain investors feel there are still benefits from international property investment
- 12,000 words – 40 pages in length
- Good use of literature
- Good analysis of subject area
- Well written throughout
- Includes questionnaire
- Ideal for economics students
1: Introduction to study
Outline of Dissertation Structure
Importance of Study
Chosen Specialism and explanation of how this relates to the dissertation
2: Property’s Role in a Multi-Asset Portfolio
Alternative Forms of Investment
Hedge against Inflation
The Role of Property
3: Research Methodology
Chosen Research Methods
4: Research Findings
Alternative Forms of Investment
Property’s Characteristics and its Role within a Multi-Asset Portfolio
Impact of the Credit Crunch on Investment and the Property Market
Overview of Findings