Can anyone advise me what does “unleveraged NAREIT” mean ? and “leveraged NAREIT”? Your advice will be much appreciated !
And what does “unleveraged NCREIF” mean ? “leveraged NCREIF”?
where do you see the term “unleveraged” NAREIT? I have seen NAREIT “hedged”, which means the overall equity return component has been removed. See CFAI V5 P18.
Buckhead Wrote: ------------------------------------------------------- > where do you see the term “unleveraged” NAREIT? I > have seen NAREIT “hedged”, which means the overall > equity return component has been removed. See > CFAI V5 P18. isn’t it technically s&p 500 removed? can still be small cap effect?.. i notice hedging it didn’t seem to reduce the stdev very much (doing this from memory) but really took down the return (can’t remember on correlation)
They are found in the solution to Q#5 of Schweser Practice Exam Volume 2 Exam 3 morning session.
i wouldn’t be surrprised if schweser has included a term that isn’t in this years syllabus. Note that in the questions on reading 37, CFAI references the “uncorrected” NCREIF index, which the answers imply means “smoothed”, or, not “unsmoothed”. Note that I don’t see the term “uncorrected NCREIF” in anywhere else in reading 37.
"unleveraged (non-everaged) and “leveraged (levered)” are found in 2nd paragraph on CFAI V5 P18 too !
i don’t see that, I just see the statement “the NCREIF index represents nonleveraged investment only”. The exhibits and other references never show or allude to an “unlevered NCREIF”.
My guess is that one calculates the return with the leverage used on the underlying property (mortgage) and the other assumes no leverage. Since leverage magnifies returns as seen below the returns could be very different. Rp=Ri + [(B/E) x (Ri - cost)] This is just my guess though.
mwvt9, that is a good guess, the problem though is that it is nowhere to be seen in the syllabus, atleast, that I have seen.
both equity and leveraged properties report to NCREIF. But leveraged properties also report their debt levels to the index, so the returns for the leveraged properties are added to the index after the effect of leverage is removed. NAREIT is both leveraged an unleveraged properties and high volatility of the index is result of leverage. it’s in the books actually, but the text slightly touches the leverage issue, this subject will probably be tested as it was also tested last year.
The 3rd line on CFAI V5 P18 stated (REITs are a “levered” exposure to real estate).