GLOBAL - Institutional investors should expand their listed property portfolios to include publicly listed fixed income investments, according to Invesco Real Estate.
Speaking at the fund manager's annual conference in Amsterdam, held in association with IP Real Estate, portfolio manager James Cowen said adding listed real estate debt assets to a portfolio could enhance income returns and help manage market volatility.
Andrew Hills, director of client portfolio management at Invesco Real Estate, had already showed the audience how adding real estate investment trusts (REITs) to a private real estate portfolio resulted in a better risk profile.
But Cowen argued that expanding the investment universe to include commercial mortgage-backed securities (CMBS) and REIT corporate debt would improve portfolios further.
He said the addition of listed property debt investments could "materially increase recurring yield" and "reduce real estate portfolio volatility".
Cowen added that the market was dominated by fixed income - rather than real estate - investors, increasing the likelihood of mispricing opportunities.
The largest segment of what Cowen called listed "real estate fixed income" was shown to be the US CMBS market, estimated to be worth some $600bn (€445bn), where junior AAA-rated CMBS and AAA-rated super senior CMBS were shown to yield 8% and 5.3%, respectively.
Cowen said selective CMBS - and REIT debt - investments could provide access to real estate returns without the full equity price volatility.
The conference audience was made up of more than 50 European institutional investors, most of which are based in the Netherlands.
A number of Dutch institutions, including APG and PGGM, have already embraced the approach of blending listed real estate investments with a non-listed property portfolio.
Cowen urged investors to consider real estate securities debt as an additional ingredient, especially in an environment where investors were focusing on income returns.
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