Portfolios that diversify geographically are more resilient to downturns than those invested across multiple sectors, Remy Briand, managing director of MSCI, said today.
Speaking at the MSCI/IPF Property Investment Conference, Briand said that because cycles are not synchronised between countries, targeting real estate internationally could help mitigate downturns.
He said: “The gap between the best and worst performing national markets is much bigger than the gap between the best and worst performing sectors.”
Because the UK has experienced some of the most volatility of any country MSCI tracks, Briand said that “substantial risk mitigation is available through international diversification”.
However, Paul Clark, chief investment officer at the Crown Estate, said that it is important to target markets you know because it helps you understand the risks. He said: “Now is not the time to be involved in markets you’re not too familiar with.”
Despite the EU referendum, UK real estate remains “very attractive”, he said, bolstered by a diversification of tenants in central London offices, record high global capital inflows and volumes that, despite a decline, are still above where they were in previous cycles.
With supply not outstripping demand, Clark said that the UK is “unlikely to build itself into a supply-led downturn”.
He added that although the end of the cycle is investible, it is not nearing the end yet.
“We are going through a mid-cycle adjustment, which will at worst be a shallow trough – not a major downturn.”
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