the influence of ownership, sector allocation and investment style on portfolio volatility
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The Influence Of Ownership, Sector Allocation And Investment Style On Portfolio Volatility. Sebastian Gläsner IPD Investment Property Databank GmbH, Wiesbaden. Research motivation. - PowerPoint PPT PresentationTRANSCRIPT
Sebastian Gläsner
IPD Investment Property Databank GmbH, Wiesbaden
The Influence Of Ownership,Sector Allocation And Investment Style
On Portfolio Volatility
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Research motivation
• The German property market described by the IPD Total Return index DIX showed low volatility over the last two decades
• Even in times of worldwide financial crisis in 2008 and 2009, the Total Return remained (slightly) positive
• The underlying property appraisals have frequently been criticised for smoothing and lagging tendencies as a consequence of “sustainable” factors that enter the valuation process
• Although the polycentric German property market does not necessarily need to show as much volatility as for example the London-focused UK market, we want to deepen our understanding of the index performance
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German properties of foreign investors
• As IPD offers specialised benchmarks for groups of clients, such as e.g. insurances, we compared the group “foreign investors” to the German investors
• Data refers to standing investments only (no transactions, no developments)
• Index calculation is capital weighted (IPD standard)
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Investor performance –Total return
• Sharpe outperformance of foreign investors from 2003 to 2007, peak in 2006
• Strong underperformance in 2008 and 2009
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Investor performance –Income return
• Constantly higher income returns of foreign investors
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Sector allocation
• Foreign investors are strongly over-allocated in sector industry (32.4% vs. 2.3%)
• Both investor groups have a focus on office and retail investments
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The German index by investor groups
• We assigned each portfolio to an investor type:– Asset manager– Foreign investor– Insurance– Open-end fund (retail and institutional)
• As we apply statistical analysis, each property has the same weight, the “index” is not capital weighted like IPD standard
• We excluded properties with a CV of less than 500.000 EUR from the analysis
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DataInvestors in the German DIX
asset manager: 6 insurance: 13 open-end fund: (cont.)alstria offi ce REIT Allianz Lebensversicherung Gerling Immo Spezial 1Deutsche Wohnen Allianz Sachgruppe HANSAimmobiliaIVG Immobilien Portfolio Deutschland Allianz sonstige HANSAreal1LBBW Immobilien GmbH AmpegaGerling Direktbestände Konzern-Gesellschaften HANSAreal2POLIS Immobilien AG AXA Immobilienbestand Deutschland hausInvest europaVivico Immobilien Portfolio BASF Pensionskasse Inter ImmoProfilforeign investor: 22 Bayerische Versorgungskammer Meag German Prime OpportunitiesAMB Europe Fund I DBV Winterthur Immobilien Meag German SuperstoresBACA Real Invest Portfolio ERGO Gruppe ProCommerzGrainger Generali Deutschland Immobilien Real Invest 1HDG Global Properties Income Fund Münchener Rückversicherungs AG Real Invest 2ING REIM Germany R + V Immobilien RREEF grundbesitz-europaInternos GRP Zurich Versicherung SEB Global PropertyInvista ERE Trust SICAF SEB ImmoInvestLasalle Investments Germany open-end fund: 35 SEB ImmoPortfolio Target ReturnProLogis European Properties Fund (PEPR) CGS Immo-Spezial Shoppingcenter DProLogis European Properties Fund II (PEPF II) Credit Suisse EUROREAL UniImmo: DeutschlandRaiffeisen Immobilien Fonds (Publikumsfonds) Credit Suisse Property Dynamic UniImmo: EuropaRaiffeisen Immobilien Fonds (Spezialfonds) Credit Suisse WV Immobilienfonds WestInvest 1REDEVCO German Property Portfolio DB Immobilienspezialfonds Nr. 1 WestInvest InterselectRockspring German Retail Box Fund DEFO-Immobilienfonds 1 Westinvest Spezial 1Rockspring PanEuropean Property Ltd. DEFO-Immobilienfonds 2Rockspring TransEuropean Ltd. III DEGI Europa total: 76Rodamco Central Europe (Germany) Deka-ImmobilienFonds/Deka-Immobilien EuropaRubin (AEW Europe) DIFA-Fonds Nr. 3Schweizerische National-Versicherungs-Gesellschaft Euro ImmoProfilSEGRO Germany Euro Logistik 1Shaftesbury Germany Euro Offi ce 1Sonae Sierra Germany Euro Property 1
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Properties by investor group
# Total returnsInvType 2006 2007 2008 2009 analysis possible?asset manager 5 foreign investor 39 51 78 144 >>> analysis for 2006-2009insurance 1 1 1 1 open-end fund 17 15 13 17 industry 62 67 92 162 asset manager 16 23 36 89 foreign investor 5 17 42 46 >>> analysis for 2007, 2008 and 2009
insurance 626 536 428 442 open-end fund 542 373 370 247 office 1,189 949 876 824 asset manager 9 5 3 foreign investor 5 7 10 9 >>> no analysis for sector "other"insurance 128 71 62 65 open-end fund 95 55 52 37 other 237 138 124 114 asset manager 672 717 foreign investor 2 1 136 150 >>> analysis for 2008 and 2009insurance 559 459 427 414 open-end fund 17 15 7 10 residential 578 1,147 570 1,291 asset manager 1 1 1 19 foreign investor 105 140 234 298 >>> analysis for 2006-2009insurance 249 172 163 183 open-end fund 230 160 142 99 retail 585 473 540 599 total 2,651 2,774 2,202 2,990
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Investors in the German DIXMeans of Total Returns
Foreign investors achieved higher total returns in 2006 and 2007 and lower total returns in 2008 and 2009 in all analyzed sectors
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Investors in the German DIXStandard deviation of Total Returns
The spread (sd) between singleproperty returns within the groups does not vary significantly
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Foreign investments are more volatile
Investor / periodmean
TRmedian
TR
domestic 08/09 4.2% 4.8%
foreign 08/09 0.1% 1.0%
domestic 06/07 3.7% 4.4%
foreign 06/07 7.7% 8.2%
-30% -20% -10% 0% +10% +20% +30%
•Foreign investors:Mean total returns of 7.7% in 2006/2007
•Returns dropped to 0.1% in the 2008/2009 period
Domestic investors:•Mean TR of 3.7% in the 2006/2007 period
•Even higher returns (4.2%) in 2008/2009
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Industry investments are more volatile
-30% -20% -10% 0% +10% +20% +30%
DIX (excl. industry):•Mean total returns of 3.9% in 2006/2007
•Similar returns of 3.3% in the 2008/2009 period
Industry sector:•Mean TR of 5.5% in the 2006/2007 period
•Sharpe decline to -1.6% in 2008/2009
>>> As foreign investors are stronglyover-allocated in the industry segment, both effects interfere
Investor / periodmean
TRmedian
TR
DIX 08/09 3.3% 4.3%
industry 08/09 -1.6% -1.2%
DIX 06/07 3.9% 4.7%
industry 06/07 5.5% 7.3%
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Retail properties: Domestic vs. foreign investors
-30% -20% -10% 0% +10% +20% +30%
Analysis of retail sector, as both investor groups have sufficient assets for comparison
Domestic retail investors•Low total returns of 2.3% in 2006/2007•Higher returns of 3.5% in the 2008/2009 period
Foreign retail investors:•Mean TR of 8.6% in the 2006/2007 period•Sharpe decline to 0.9% in 2008/2009
>>> As each group has more than 100 retail properties in every analyzed year, the conclusion is that foreign investors had their assets appreciated in the 2006/2007 period and depreciated in the 2008/2009 period. For German investors there was only a minor change in the market values of their retail investments
Investor / periodmean
TRmedian
TR
retail DIX 08/09 3.5% 5.0%
retail foreign 08/09 0.9% 1.1%
retail DIX 06/07 2.3% 4.4%
retail foreign 06/07 8.6% 8.2%
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Accounting for investment risk
• To account for different risk levels of investments, analysis focuses
on capital growth rather than Total Return
• The risk of a property is measured by the maximum income return
the property realized between 2000 and 2009
• The terciles of the resulting distribution of income returns define the
dummy regression groups “IRlow”, “IRmed” and “IRhigh”
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Dummy regression: Explaining capital growth 2009 by Investor type, sector and income return
• Foreign investments have
significantly lower capital
growth
lm(formula = CG09 ~ InvForeign + InvFund + InvInsurance + SecIndustry + SecOffice + SecResidential + SecRetail + Irlow + IRhigh)Coefficients:
Estimate Error t value Pr(>|t|)(Intercept) -3.6% 1.0% -3.539 0.000***InvForeign -4.9% 0.6% -7.981 0.000***InvFund 1.1% 0.7% 1.597 0.110InvInsurance -0.5% 0.5% -0.945 0.345SecIndustry -2.5% 1.2% -2.069 0.039*SecOffice 1.2% 0.9% 1.317 0.188SecResidential 5.3% 1.0% 5.538 0.000***SecRetail 1.8% 1.0% 1.803 0.071.IRlow 0.1% 0.4% 0.250 0.803IRhigh 0.4% 0.4% 1.102 0.270---Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1
Residual standard error: 0.09332 on 2980 degrees of freedom (2956 observations deleted due to missingness)Multiple R-squared: 0.1222, Adjusted R-squared: 0.1195 F-statistic: 46.09 on 9 and 2980 DF, p-value: < 2.2e-16
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Dummy regression: Explaining capital growth 2008 by Investor type, sector and income return
lm(formula = CG08 ~ InvForeign + InvFund + InvInsurance + SecIndustry + SecOffice + SecResidential + SecRetail + IRlow + IRhigh)Coefficients:
Estimate Error t value Pr(>|t|)(Intercept) -0.2% 1.4% -0.129 0.897InvForeign -5.5% 1.3% -4.152 0.000***InvFund -0.7% 1.3% -0.538 0.591InvInsurance -0.6% 1.3% -0.502 0.616SecIndustry -0.7% 1.1% -0.634 0.526SecOffice 0.4% 0.7% 0.563 0.574SecResidential 2.9% 0.8% 3.877 0.000***SecRetail 0.7% 0.8% 0.978 0.328IRlow -1.2% 0.4% -2.730 0.006**IRhigh -1.2% 0.4% -3.166 0.002**---Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1
Residual standard error: 0.07451 on 2192 degrees of freedom(3744 observations deleted due to missingness)Multiple R-squared: 0.09674, Adjusted R-squared: 0.09303 F-statistic: 26.08 on 9 and 2192 DF, p-value: < 2.2e-16
• Foreign investments have
significantly lower capital
growth
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Dummy regression: Explaining capital growth 2006 by Investor type, sector and income return
• Foreign investments with
higher growth rates, but not
significant due to few
observations
• Neither significant results for
2007 and 2005
lm(formula = CG06 ~ InvForeign + InvFund + InvInsurance + SecIndustry + SecOffice + SecResidential + SecRetail + IRlow + IRhigh)Coefficients:
Estimate Error t value Pr(>|t|)(Intercept) 0.2% 2.0% 0.111 0.912InvForeign 2.6% 2.1% 1.218 0.223InvFund -2.8% 1.9% -1.436 0.151InvInsurance -0.2% 1.9% -0.128 0.898SecIndustry -1.8% 1.6% -1.090 0.276SecOffice -2.5% 0.7% -3.394 0.001***SecResidential 3.9% 0.8% 4.606 0.000***SecRetail -1.4% 0.8% -1.650 0.099.IRlow -0.8% 0.5% -1.495 0.135IRhigh -0.5% 0.5% -1.014 0.311---Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1
Residual standard error: 0.07451 on 2192 degrees of freedom(3744 observations deleted due to missingness)Multiple R-squared: 0.09674, Adjusted R-squared: 0.09303 F-statistic: 26.08 on 9 and 2192 DF, p-value: < 2.2e-16
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Overview: Significant capital growth differences 2005-2009
• Stars indicate significance level, “sign” refers to the sign of the estimate, i.e.
whether the deviation is positive or negative
• Foreign investments deviate highly significant negative in 2008 and 2009
• Objects with high income returns were appreciated in 2005 and depreciated in
2008
CG~InvType+ sector+IR
2005 2006 2007 2008 2009
Sig. sign Sig. sign Sig. sign Sig. sign Sig. sign# foreign owned prop. 20 53 102 214 327
InvForeign (+) (+) (-) *** - *** -InvFund . - *** -InvInsurance ** - ** -
SecIndustry * -SecOffice . - *** - SecResidential *** + *** + *** + *** + *** +SecRetail . - . +IRlow ** - *** - ** -IRhigh * + ** -Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1
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Dummy regression: Significant capital growth differences retail 2005-2009
• Capital growth of foreign investments deviates highly significant negative in
2008 and 2009 and positive between 2005 and 2007
• Objects with high income returns were depreciated in 2008
CG ~ InvForeign + IRlow + IRhigh
2005 2006 2007 2008 2009
Est. Sig. Sig. sign Sig. sign Sig. sign Sig. sign# foreign owned retail prop. 105 140 234 298InvForeign 6.7% *** 5.7% *** 3.0% *** -5.4% *** -4.0% ***IRlow -2.5% * 0.1% -0.4% -0.2% -1.1%IRhigh 0.7% -0.8% -1.7% * -0.9% 1.5%Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1
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Sum up
• Volatility of total return differs between domestic and foreign investors in Germany
• Foreign investors are strongly over-allocated in the industry segment
• Asset allocation is a necessary control variable when comparing domestic and foreign investments on the German market
• Retail investments of foreign investors showed significantly more volatility between 2005 and 2009
• Open research questions:
– Are foreign investors more opportunistic than domestic investors (by the fact that they went abroad)?
– Differences between foreign and domestic investors in other countries?
– Differences in the selection of properties within a sector (core office versus opportunistic office within Frankfurt)?
June 25
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Thank you for your attention!
IPD Investment Property Databank GmbHKirchgasse 265185 Wiesbaden
Dr. Sebastian GläsnerTelefon: (0611) 33 44 99 – [email protected]