Abstract
Although the benefits of further diversifying a portfolio of New Zealand financial assets with unsecuritised New Zealand real estate have been confirmed in previous studies, this paper examines the benefits of further diversifying a portfolio by including rural grazing property. Modern portfolio theory is used to determine the benefits of including rural property, as well as the traditional property investment assets, in a diversified investment portfolio based on New Zealand investment assets. In addition, efficient sets generated with and without real estate are compared and found significant return enhancement and risk reduction benefits of adding retail property and farm real estate to the mix. These benefits are robust even when real estate return variance is increased sixfold or when real estate returns are reduced by 20 per cent, suggesting that real estate can reasonably be expected to be a consistent part of risk efficient portfolios.
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