PROPERTY is the oldest alternative asset of all. Indeed, it comfortably predates the supposedly mainstream assets of equities and bonds. But a lot of the chatter about the move into alternative assets has focused on hedge funds, private equity and commodities.Is this because, or in spite of, property’s very strong run in recent years? The FTSE index* of global property has more than trebled since the end of 2001, easily outpacing the FTSE all-world equity index. A thousand dollars invested in American property in January 1990 would have grown to $9,580 by the end of 2005, almost double the rate of American small-cap stocks, property’s main competitor among the leading asset classes. European and Asian property trebled in value, a performance roughly in line with that of Treasury bonds.
Global property delivered a return of around 9% a year over this 15-year period, neatly sandwiched between the returns of equities and bonds, just as theory would suggest. Property has bond-like characteristics (a high income) but equity-like features as well (rental growth). Better still, according to Ibbotson Associates, global real-estate returns have only a modest correlation with American large-cap stocks and virtually zero correlation with Treasury bonds.