Investment Management Flashcards
What is a Risk-Return Trade off?
The risk-return tradeoff states that the potential return rises with an increase in risk.
What are some different requirements clients may have for their portfolio?
Relative Return
Absolute Return
Real Return
What is a Real Return?
The return an investor receives after the rate of inflation is taken into account.
What is a Relative Return?
The performance of a fund against a market benchmark
What is an Absolute return?
What an asset or portfolio returned over a certain period.
Why would a client invest in real estate?
- Predictable cashflow
- Appreciation
- Diversification
- Leverage
- Inflated hedge
Why would you diversify a portfolio?
- Spread the risk
What are some investment strategies?
Risk profile Direct Investment Indirect Investment Lending REITs
What are the benefits of a direct investment strategy?
More control over decision making
What are the benefits of an indirect investment strategy?
Real estate profits without having to own, manage, or finance property
Higher than average dividends and potential for appreciation
Liquid (easy to buy and sell
What are some different risk investing strategies?
- Core (safe, good quality, strong location)
- Core Plus (opportunity to enhance returns)
- Value Add (renovation or stablisation opportunities)
- Opportunistic (high vacancy, redevelopment)
What is a total return?
- Actual rate of return over a given period including income, capital growth and expenditure
How would you calculate total return?
(Value Change - Capex + Cap receipts + Rent )/ (Previous value + Capex)
What is a capital return?
Capital return is the growth in the value of the original investment
How would you calculate capital return?
Capital value - capex + Cap receipts / Previous Capital value + Capex
What is an income return?
The income received for an investment divided by the sum of the original investment
How would you calculate income return?
Rent / Previous value + Capex
What is the internal rate of return?
Annual rate of growth expected from an investment
i.e. when the NPV is 0. It’s a uniform measurement that can be used to rank several investment opportunities
How would you calculate IRR on excel?
Include initial outlay and income flows
What is an NPV?
- Net present value, or NPV, is used to calculate the current total value of a future stream of payments.
If the NPV of a project or investment is positive, it means that the discounted present value of all future cash flows related to that project or investment will be positive, and therefore attractive.
How would you calculate NPV?
To calculate NPV, you need to estimate future cash flows for each period and determine the correct discount rate.
What is the difference between a Total Return and an IRR?
IRR considers the time value of money and the timing of the return. It is more precise but more complex
Both can be forward looking or backward looking
Who are the main investors in UK real estate?
- Institutions ( insurance companies, pension funds)
- REITs
- PropCos
- Overseas Investors
- Traditional estates/ charities
- Private Individuals
What are some other forms of investment?
- Stocks
- Bonds
- Commodities
- Cash
- Forex
What is the BOE base rate?
0.1%
What is the 10yr average return on FTSE 100 stocks?
7.38%
What are some Investment Management KPIs?
- Occupancy rates
- Rent collection
- WAULT
- Yields
- Total Return
