Australian securitised property funds: an examination of their risk‐adjusted performance

Published date10 July 2009
DOIhttps://doi.org/10.1108/14635780910972305
Date10 July 2009
Pages404-412
AuthorDavid Higgins,Boon Ng
Subject MatterProperty management & built environment
Australian securitised property
funds: an examination of their
risk-adjusted performance
David Higgins
RMIT University, Melbourne, Australia, and
Boon Ng
ABN AMRO, Sydney, Australia
Abstract
Purpose – This paper aims to gain exposure to Australian real estate investment trusts (A-REITs).
Many institutional investors make use of securitised property funds as they employ experienced
property professionals with specialist knowledge of underlying property fundamentals, direct
property markets and the 30-plus A-REITs. As securitised property funds operate in a competitive
environment, investment performance benchmarks are important.
Design/methodology/approach – To add to the familiar risk and return benchmarks, the risk
adjusted performance (RAP) measure first outlined by Modigliani and Modigliani provides an
additional and valuable return measure to a definite level of risk. This research selected 16 wholesale
securitised property funds each with seven years of continuous quarterly total return data.
Findings – Overall a large proportion of the selected funds (14 out of 16), on average, outperformed
the market benchmark return (14.53 per cent) with the worst fund marginally under-performing the
index by 0.54 per cent. In contrast, the annualised RAP measure highlighted the differences in the
securitised property fund returns for a given level of risk, with a wide 12.90-16.66 per cent range. To
achieve this uniform level of risk, five securities property funds had to replace up to 21 per cent of their
property portfolio with a risk-free asset (90 day bank bills). The RAP measure also decomposes the
excess returns above the benchmark. In this instance, the securitised property funds outperformance
was from a mixture of active portfolio selection and simply taking on additional risk exposure.
Originality/value – The research demonstrated the benefits of analysing securitised property funds
beyond the standard return and risk measures. The RAP approach provides a measure of return for a
definite level of risk with the benchmark excess attributed to portfolio selection and additional risk.
This performance information can provide valuable additional information for an astute investor.
Keywords Property finance,Investment appraisal, Real estate
Paper type Research paper
1. Introduction
The attraction of commercial real estate as an investment asset class is well
documented in capital market literature. A cost effective way to gain exposure to
commercial real estate is through investment in real estate investment trusts (REITs).
Recognised as world leader in securitised property, Australian REITs operate in a well
established regulatory environment and are traded on the Australian Stock Exchange,
providing investors with liquidity and governance that is typically not offered by
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
The authors would like to acknowledge the work done by Edwin Chu, Perpetual Limited, at the
initial stages of this research.
JPIF
27,4
404
Received October 2008
Accepted March 2009
Journal of Property Investment &
Finance
Vol. 27 No. 4, 2009
pp. 404-412
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635780910972305

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