Moving the needle
The view at JGS is that a small number of larger investments rather than a large number of smaller investments creates a more effective portfolio. With this approach, each investment within the portfolio has the ability to "move the needle" of the client's entire portfolio annual returns. It should also, on average, form a lower cost management solution.
The strategy for a successful portfolio must reflect:
- the client's existing portfolio
- the state of property markets
- diversification by fund managers for wholesale funds
- the client's target return ranges
Any additions to a client's portfolio must be research driven. Each additional investment must improve the risk/return profile of the client's portfolio.
The fund managers and/or direct property assets within the portfolio and underlying investment returns should depend more on the talents of the manager and/or the quality of the asset and less on fortuitous favourable economic movements. Recent lowering of capitalisation rates has made almost all property investments "look good".
We believe the client's portfolio should:
- concentrate on the 'premium' end of the market or manager pool
- consider the likely behaviour of the investment or manager in varying economic and demand conditions
- have an emphasis on geographic and sectoral values from a local, national and global perspective
- analyse the timing of proposed exit strategies for each investment including the illiquidity of wholesale unlisted investments.
JGS has always adopted a consistent and thorough methodology to the construction of property portfolios which focuses on markets, stock, vacancy rates, economic conditions, geographic influences, investment policy and capacity. These factors will always be key influences in the construction, diversity and investment size in any portfolio and thorough methodology. These factors are manageable and should not unduly impact returns.