Some implications of the lack of a consensus view of UK property's future risk and return

Surveys of 'experts' have been undertaken to obtain forecasts of the future risk and return relationship of Property with Equities and Bonds in both the USA and the UK. The mean or median values of these forecasts have been used in asset allocation models to justify Property's position in the mixed asset portfolio. The use of these measures as consensus forecasts has been adopted without determining the meaning of Consensus and whether they can be taken as consensual. This paper uses Consensus testing methodology on data from a survey of UK Property professionals to test whether a Consensus exists in their forecasts of the future risk/return of UK property. The results show that for a number of key variables there is substantial disagreement. The implication is that, for individual funds seeking to justify a place for Property in a mixed asset portfolio, it must depend upon their views of the expected risk and return characteristics of the asset classes that form their portfolio, rather than any more general measures of central tendency. In this context the Modern Portfolio approach enables stress testing of assumptions about the level of holding that they wish for Property by developing scenarios given the risk and return expectations of the assets. Results of using such scenarios in this context are shown for the UK Consensus holding (15%).