Are your clients over-exposed to property?

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Australians have a love affair with real estate, and a recent survey of 13 countries found Australia had the second-highest holdings of real estate investments, at 27% of their overall investment allocation. This is compared to 7% in the US and 17% in the UK.

CoreData’s latest Investor Equities Sentiment Index showed residential property as the asset class which respondents were happiest with, but Chris Smith of Australian Unity Investments says investors, especially those that own an investment property as well as their home, are over-exposed.

“Such investors are vulnerable in that they are overweight to residential property at the expense of other property sectors which are currently performing much better…

“A better re-balancing would be to include a selection of property sectors as well as equities for both growth and defensive reasons,” says Smith.

A new portfolio X-Ray service from van Eyk, which dissects portfolios by categories including asset class, investment style and fund manager selection, has also shown an unintended bias in most portfolios towards particular market sectors.

“The results show that most portfolios require at least some adjustments and that it’s possible to reduce the level of risk without giving up performance or radically changing asset allocation,” said van Eyk head of asset consulting Jonathan Ramsay.

Close to a quarter of investors indicate that they do not have a good understanding of the income producing products available to them and 85% want their adviser to bring them more income opportunities.

Legg Mason head of Global Marketing Matt Schiffman says “when it comes to income generating investments, Australians may be better placed to diversify more strongly beyond real estate, and increase their allocation to equity investments that pay a high level of income, which may also provide them with the added advantages of dividend imputation."

Smith, from Australian Unity Investments, thinks that opportunities lie in different property sectors, and that an ageing population makes the healthcare sector very attractive. “There has been a recent burst of activity to build or rebuild medical infrastructure which is creating an additional need for support healthcare services such as consulting rooms and other specialist centres.”