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The role of active portfolio management and sector selection in Sharpe ratio optimal portfolios in the 21st century

Author

Listed:
  • Wilhelm Breuer
  • Johannes Kroog
Abstract
The paper compares the optimal portfolio constellations of listed real estate companies (LRE) with a pure market weighting over a time horizon from 2008 to 2023. The companies represented were selected according to market capitalisation and geographical criteria. The ten largest companies from each of the regions North America, the eurozone, Asia-Pacific and the UK were compiled in rolling five-year time frames according to the Sharpe ratio-optimised allocation. In a second step, the selected companies were structured according to their asset classes Retail, Residential, Office, Industrial, Diversified and Specialty and analysed using the same method. It can be seen that active portfolio management generally has a better risk-return profile than simply market-weighted portfolios. The risk component in particular can be significantly reduced. In comparison, the eurozone achieves the best risk-adjusted performance. Optimisation can increase the Sharpe ratio here by an average of +25.5%. In a comparison by asset class, companies with a residential focus stand out with the highest Sharpe ratio. By optimising the portfolio constellation, the Sharpe ratio can be increased by an average of 42.3%.

Suggested Citation

  • Wilhelm Breuer & Johannes Kroog, 2024. "The role of active portfolio management and sector selection in Sharpe ratio optimal portfolios in the 21st century," ERES eres2024-124, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2024-124
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    More about this item

    Keywords

    atcive portfolio management; CAPM; Listed Real Estate; Portfolio Selection;
    All these keywords.

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

    NEP fields

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