SIGNIFICANCE OF MATURE & GLOBALISED SINGAPORE REIT IN A MULTI-ASSET PORTFOLIO

Abstract

Purpose – Singapore Real Estate Investment Trusts are an important property investment vehicle, with a current market capitalisation of S$88 billion making it the third largest REIT in Asia. The purpose of this paper is to assess the significance of Singapore REIT in a mixed-asset portfolio and its optimal portfolio allocation sizing over 2007-2018. In addition, the paper explores S-REITs contribution to a portfolio during different stages of its growth.

Design/Methodology/Approach - Mean-variance optimization, the heart of modern portfolio theory is used as the primary tool for this paper. The three sets of inputs required to make up a given opportunity set – returns, standard deviations, and correlation coefficient. This allows for the creation of an efficient frontier, where each point on the frontier represents the risk and return of an efficient asset allocation. Efficient frontier and asset allocation diagrams are used to assess the significant of Singapore REIT in a mixed asset portfolio over 2007-2018. Additionally, alpha and beta analysis is conducted to quantitatively measure the impact of including S-REIT in a portfolio.

Findings – S-REIT have shown favourable performance in risk-adjusted return however a limited in diversification benefits. Including S-REIT in a mixed-asset portfolio do enhance a portfolio’s expected return but it may contribute to additional risk borne by the investor. Although imperfect correlation were observed between S-REIT and other assets, the diversification benefits of including S-REIT were minimal. Optimal portfolio allocation was found to be 11.8% which yielded the highest risk-adjusted return for the portfolio composed of S-REIT, Bonds and Property.