Investors benefit from having a ‘private’ eye

The premise behind Modern Portfolio Theory is that there may be significant benefits to an investment portfolio when it includes asset classes that are not correlated to each other.

Uncorrelated assets don’t tend to move in the same way at the same time and if there is zero correlation or negative, one asset class may actually go up when the other is falling, and vice versa. By owning a bit of both, you have the potential to do well in various market conditions and, more importantly, avoid the deep dips that holding one asset class could expose your portfolio to.

However, simply adding another asset class to a portfolio may or may not increase the diversification of the portfolio. For instance, adding a global equity fund or global ETF to a portfolio that is already heavily invested in Canadian and/or US stocks will not meaningfully increase a portfolio’s diversification, since over the last 29 years, the returns of the Global Equity Index have been highly correlated to the returns on Canadian equities and extremely correlated to the returns on US equities (58% and 89% respectfully).

Private real estate, on the other hand, has historically shown no real correlation to public equities or for that matter public bonds. Therefore, by adding private real estate to an existing portfolio of equities and bonds, investors should be able to gain diversification benefits since these assets tend to perform in a less-than-correlated-way, and in combination, should be able to dampen the overall volatility of a portfolio.

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For Advisors – Please Contact:
Marcus Schlechta | VP, Business Development |
JD Methot | VP, Business Development |

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