Building property into private client portfolios
Didier Duret, ABN Amro Private Bank
Many private banks are increasing client allocations to real estate, and some of the best bargains can be found in Europe
Low interest rates have made conventional fixed income investments unappetising, but they have made property, a significant segment within many private clients’ alternative asset allocations, positively exciting.
In April ABN Amro Private Bank increased real estate allocation for its more conservative clients, who still want to invest largely in yield-bearing assets, but want better yields than bonds can offer.
Many real estate investment trusts offer yields of 4 per cent, notes Didier Duret, chief investment officer at ABN Amro Private Bank in Amsterdam – considerably more than, for example, current 10-year Bund yields of 1.4 percent.
He points to some attractive discounts to net asset value, of about 7 per cent, for both shopping malls and residential apartment blocks in the US. However, the best bargains of all may be in Europe.
“Various stimulative measures and low cost of financing will raise the profitability of the sector in mainland Europe,” predicts Mr Duret. He cites 30 per cent discounts to Nav (net asset value) for Reits (real estate investment trusts) covering Austria and the Netherlands, for example.
Various stimulative measures and low cost of financing will raise the profitability of the sector in mainland Europe
Julius Baer also likes eurozone Reits. Daniel Kerbach, head of portfolio management at Bank Julius Baer in Zurich, notes commercial property prices are starting to recover in the region, with signs of a pickup, too, in some residential markets – notably Germany. He advocates investing in a mixture of commercial and residential property.
But the UK is looking a little too expensive, warns Mr Kerbach. House prices have risen by 18 per cent in London over the past year. He cites Commerzbank research, looking at 1978 to 2012, which shows adding Reits to a conventional balanced portfolio of equities and fixed income would have increased the risk-adjusted return of a portfolio over that period.
“Real assets such as real estate didn’t feature high on the list of high net worth individuals’ investments, four years or so ago,” says Amin Rajan, CEO of Create-Research, a UK-based consultancy. “Now they rank very high indeed.”
Investors are interested, he says, in their ability to deliver capital growth, regular cashflow, and inflation protection. When it comes to inflation, “clients very greatly fear the unintended consequences of cheap money policies”.
