Interest rate differentials between the US and Australia are set to narrow further, creating Foreign Exchange opportunities for investors
There are options to consider when allocating property to your portfolio. NAB Private Wealth aligns its views with those of institutional investors and favours core unlisted commercial property, with low to moderate gearing, rather than listed property securities or residential property.
Our asset allocation recommendations contain suggested exposures to property. However, investors have many options when they consider an allocation to property in their portfolio.
They can buy commercial properties or invest in a managed fund that buys unlisted commercial properties, or they can buy property securities traded on the stock exchange. Investors may also own residential investment property directly, or through a self-managed superannuation fund. So, what do we mean when we talk about property, and should all property types be treated the same? For example, should listed property securities be viewed as property or shares, and will a leveraged residential investment property provide all the risk, return and diversification benefits that are required in a diversified portfolio?
Many advisers argue that listed property securities (for example, Westfield Group) should be viewed as just another listed industry sector – much like retailers or media companies, which are also listed on the stock exchange. And since many Australian share funds invest in property stocks anyway, you still get exposure to property securities through your allocation of Australian or international shares.
Moving to residential property, many of us are already heavily exposed to this asset class, and rental yields are either very low or negative (if geared). Therefore, it isn’t necessarily providing income or diversification, particularly if house prices are linked to interest rate cycles.
As such, our views tend to align with those of institutional investors. We believe the best form of property investment is core unlisted commercial property with low to moderate gearing, rather than property securities or residential property. This view was vindicated during the Global Financial Crisis, when securities in highly leveraged, listed property companies – such as Centro and GPT – plummeted with equities markets. By contrast, core unlisted commercial properties retained their values, maintained their rental income streams and provided strong portfolio diversification.
Our asset allocation summary:
For further analysis, download the full report.
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