Investment research house Lonsec has advised investors to be aware of the risks involved with property securities, including equity market-type risk and a high level of volatility.
“Property securities tend to behave more like bonds in stable markets but become more like equity in periods of high volatility and crisis,” Lonsec senior investment analyst Sam Morris said.
“Thus it may be considered preferable for investors to utilise more defensive global property securities funds in their overall portfolios.”
Despite those risk characteristics, Lonsec said it believed there was a compelling case to include property securities in an investment portfolio for greater diversification.
However, the research house also warned investors against relying on an allocation to property securities as a source of yield.
“We also don’t believe investors should be relying upon global property securities funds as a source of income in an overall portfolio context – particularly those with currency hedging overlays,” Morris said.
The observations come as a result of Lonsec’s 2014/15 global property securities sector review, in which the Presima Global Property Securities Concentrated Fund and Resolution Capital Global Property Securities Fund earned a rating upgrade to highly recommended.
The research house noted there had been a significant move toward product development within the sector.
“We’ve seen some positive steps in terms of product development with the creation of some more ‘benchmark-unconstrained’ strategies,” Morris said.
“In recent years we’ve also seen a product evolution, highlighted by the recent creation of the EQT LaSalle Global Property Rich Trust, which aims to deliver a return profile more akin to direct property than traditional listed property benchmarks.”
The review also found global listed property securities outperformed global equities in 2014 by 15.8 per cent, generating a return of 28.4 per cent.
In regard to specific geographical regions, Lonsec’s report revealed the United States real estate investment trust market was the best performer, while the Asian market delivered the weakest returns.
