Style analysis and property fund performance
| Date | 01 May 1999 |
| Pages | 145-157 |
| DOI | https://doi.org/10.1108/14635789910258534 |
| Published date | 01 May 1999 |
| Author | Stephen Lee |
| Subject Matter | Property management & built environment |
Academic papers:
Style and fund
performance
145
Journal of Property
Investment & Finance,
Vol. 17 No. 2, 1999, pp. 145-156.
#MCB University Press, 1463-578X
Received 20 May 1998
Revised 2 December 1998
ACADEMIC PAPERS
Style analysis and property
fund performance
Stephen Lee
Department of Land Management, The University of Reading,
Reading, UK
Keywords Performance monitoring, Property portfolio management
Abstract There are three basic approaches to style analysis: (i) an examination of the portfolio
and security selection procedures used by the fund managers, (ii) a factor model approach, and
(iii) return-based approaches, all with their own strengths and weaknesses. Of the return-based
methods the effective asset mix approach, as devised and popularised by Sharpe, offers the
investor the simplest route to style analysis. This study applies this approach to a sample of 37
property funds in the UK and shows that style analysis can make an important contribution to the
analysis of portfolio performance. Results that should prove of considerable interest to fund
managers and property professionals alike.
Introduction
Both the Bank Administration Institute (1968) in America and The Society of
Investment Analysts (1972) in the UK recommend the time-weighted rate of
return (TWRR) as the means of assessing a fund manager's performance.
However, the TWRR only describes a manager's absolute performance. It does
not, for example, allow us to make judgements about the quality of that
performance,such as how well the fund manager is performingagainst his or her
peers, or againstother managed or unmanaged portfolioswith similar objectives.
In order to answer these questions we need to analyse the fund manager's
investment style to identify the ``right'' benchmark for comparison. Since most
fund managers tend to specialise in a particular style of investing, comparisons
that do not take such styledifferences into account are likelyto be flawed.
For example, some property investors concentrate on ``over rented'' property,
with high yields and little or no reversionary potential (Whitmore, 1996), while
others focus on properties with short leases (Baum, 1982). Comparing one fund
manager with another who has a different style of investing, therefore, may
lead to the charge of not comparing like-with-like, and could result to erroneous
conclusions as to which manager is performing ``best''. Even in situations
where the fund managers can be classified as from the ``same'' investment
group, such as Property Funds[1] in the UK, managers will focus on particular
sectors, or subsets, of the market, leading to different ``returns from style''
through time. Trying to identify a fund manager's style, however, is not an
easy task and three methods of approach have been suggested.
The first approach compares the fund's return pattern and the fund
manager's actual behaviour with the fund's stated investment orientation,
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