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Performance and significance of UK‐listed infrastructure in a mixed‐asset portfolio

Performance and significance of UK‐listed infrastructure in a mixed‐asset portfolio Purpose – This paper aims to examine the performance of UK‐listed infrastructure over a unique investment period covering the global financial crisis and investigates the significance of UK infrastructure in a multi‐asset portfolio. The analysis reveals the level of correlation of UK infrastructure with other major assets classes and substantiates the potential diversification benefits of including UK infrastructure within a mixed‐asset portfolio. Design/methodology/approach – The study uses monthly investment return indices obtained from Thomson Reuters DataStream over a ten‐year period (2001‐2010). The paper analyzed the UK‐listed infrastructure investment return characteristics including average annual return, annual risk, Sharpe indices, mean variance portfolio and maximum return portfolio and computes the efficient portfolio frontiers using the risk‐solver optimization tool. Findings – The performance results show that UK infrastructure produced better risk‐return trade‐offs than those of UK property, private equity, hedge funds and UK stocks over 2001‐2010. Overall, for the ten‐year period, UK Water was the best performing asset class, outperforming all other asset classes having the highest Sharpe ratio of 0.75. Practical implications – Using the monthly return indices over the ten‐year period, UK‐listed infrastructure investment was found to play a consistently significant role in the optimality of mixed‐asset portfolios. However, the diversification benefits were more return enhancing than risk reducing, offering investors a platform for matching investment objectives with expectations resulting from a better understanding of the characteristics of UK‐listed infrastructure investments. Originality/value – As investors seek better understanding of the performance of infrastructure across the globe, with most previous studies focusing on Australia, USA and China, the paper makes significant contribution to the body of knowledge by focusing on UK, a promising investment space for infrastructure industry. Also, given the debate surrounding the emergence of infrastructure as a separate asset class, the paper particularly projects the potential benefits of investing in UK‐listed infrastructure, offering investors a distinctive platform to launch into a vibrant asset class. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of European Real Estate Research Emerald Publishing

Performance and significance of UK‐listed infrastructure in a mixed‐asset portfolio

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Publisher
Emerald Publishing
Copyright
Copyright © 2014 Emerald Group Publishing Limited. All rights reserved.
ISSN
1753-9269
DOI
10.1108/JERER-08-2013-0015
Publisher site
See Article on Publisher Site

Abstract

Purpose – This paper aims to examine the performance of UK‐listed infrastructure over a unique investment period covering the global financial crisis and investigates the significance of UK infrastructure in a multi‐asset portfolio. The analysis reveals the level of correlation of UK infrastructure with other major assets classes and substantiates the potential diversification benefits of including UK infrastructure within a mixed‐asset portfolio. Design/methodology/approach – The study uses monthly investment return indices obtained from Thomson Reuters DataStream over a ten‐year period (2001‐2010). The paper analyzed the UK‐listed infrastructure investment return characteristics including average annual return, annual risk, Sharpe indices, mean variance portfolio and maximum return portfolio and computes the efficient portfolio frontiers using the risk‐solver optimization tool. Findings – The performance results show that UK infrastructure produced better risk‐return trade‐offs than those of UK property, private equity, hedge funds and UK stocks over 2001‐2010. Overall, for the ten‐year period, UK Water was the best performing asset class, outperforming all other asset classes having the highest Sharpe ratio of 0.75. Practical implications – Using the monthly return indices over the ten‐year period, UK‐listed infrastructure investment was found to play a consistently significant role in the optimality of mixed‐asset portfolios. However, the diversification benefits were more return enhancing than risk reducing, offering investors a platform for matching investment objectives with expectations resulting from a better understanding of the characteristics of UK‐listed infrastructure investments. Originality/value – As investors seek better understanding of the performance of infrastructure across the globe, with most previous studies focusing on Australia, USA and China, the paper makes significant contribution to the body of knowledge by focusing on UK, a promising investment space for infrastructure industry. Also, given the debate surrounding the emergence of infrastructure as a separate asset class, the paper particularly projects the potential benefits of investing in UK‐listed infrastructure, offering investors a distinctive platform to launch into a vibrant asset class.

Journal

Journal of European Real Estate ResearchEmerald Publishing

Published: Jul 29, 2014

Keywords: Portfolio diversification; Efficient frontiers; UK‐listed infrastructure

References