A comparative analysis of the performance of the property funds listed on the Johannesburg Stock Exchange.

Abstract

Listed property entities on the Johannesburg Stock Exchange fall under the category of ‘Financials - Real Estate’. There are four types of property entities that a prospective investor can consider namely: Property Unit Trusts, Property Loan Stock Companies, Real Estate Holding and Development Companies and Real Estate Investment Trusts. The listed property sector allows investors to enter the property investment market in a uniquely affordable and secure way without the added risk, expense and administration that comes with direct property investment. This study evaluates the investment performance of the various property fund types through the implementation of Jensen’s alpha, the Sharpe ratio and Treynor ratio in an effort to establish whether there is a significant difference in the returns that can be obtained from the diverse funds given the associated risks. An analysis of the total returns and standard deviation of the property industry shows that the real estate market is affected by changes that take place in the macro economy. It is also investigated whether there is a differential risk associated with investing in these funds. We find that there is no significant difference between the performances of the various funds and there is no differential level of risk associated with investing in the property funds. An analysis of the fluctuation of total returns and standard deviation of the property funds over the eleven year period shows that the property sector is affected by changes in economic conditions however the changes are not enough to cause colossal volatility. For instance, the global recession of 2008 had an impact on the property industry returns but the sector has since made a steady recovery.