Equity And Property Markets Flashcards
Investment and risk characteristics of equities
Security depends on the profitability of the company
Provides a long-term real yield (the return moves in line with inflation)
Higher expected returns than government bonds over the long term
Income (dividends) and capital values (prices) can be volatile
Equities can generally be held to perpetuity
Dealing expenses are linked to marketability
Marketability depends on size of the company
Quoted shares
More marketable
More secure
Easier to value
Reasons why it is practical for analysts to specialize in one area
The factors affecting one company within an industry are likely to be relevant to other companies in the same industry
Much of the information for companies in the same industry will come from a common source and will be presented in a similar way
No one analyst can expect to be an expert in all areas, so specialization is appropriate
The grouping of equities according to some common factor gives structure to the decision-making process. It assists in portfolio classification and management
Reasons why share prices of companies in the same sector are correlated
Use the same resources (eg. labor, land and raw materials) and so have similar input costs
Supply to the same markets and so are similarly affected by changes in demand
Have similar financial structures, and so are similarly affected by changes of interest rates
Factors of prime property
Location
Age and condition
Quality of tenant
The number of comparable properties - to assist with rent reviews and valuations
Lease structure - term, rent reviews, terms and conditions
Size
Investment characteristics of property
Void (times when the property doesn’t have a tenant) and default risk
Obsolescence, deterioration and refurbishment costs
Susceptible to political risk
Long-term real returns (moves in line with inflation)
Expected higher return than index-linked government bonds
Stepped income stream
Running yield varies with the type of property
Can provide high utility (feel good factor) to the investor
Long-term volatility of capital values but short-term stability due to infrequent valuations
High dealing and management costs
Possibility of investment characteristics to be changed by the investors (eg. Redevelopment)
Unmarketable
Large unit size
Indivisible
Uniqueness
Subjective valuations
Issues to consider when comparing direct and indirect property investments
Control
Discount to NAV (property share of developers and property investors)
Diversification
Divisibility
Expenses
Expertise
Marketability
Valuation
