Under the title 3.2.2 Historical Performane & Exhibit 3 What are the definitions of hedged & un-hedged, levered & non-leveraged Real Estate Indices ? Anyone can help ?
Please note above-mentioned issues are on CFAI’s text Volume 5, P18. Reading 36. Anyone can help ?
Anyone can help ?
The hedged NAREIT index means that part of the return has an equity market like risk characteristic which has been reduced or eliminated by hedging say for example shorting S&P 500 index futures. Levered refers to the fact that most REITs use leverage or borrow to invest in real estate properties whereas the index represents real estate property values and does not represent the borrowing used to invest in the properties as the REIT would use.
derswap07 Wrote: ------------------------------------------------------- > The hedged NAREIT index means that part of the > return has an equity market like risk > characteristic which has been reduced or > eliminated by hedging say for example shorting S&P > 500 index futures. > > Levered refers to the fact that most REITs use > leverage or borrow to invest in real estate > properties whereas the index represents real > estate property values and does not represent the > borrowing used to invest in the properties as the > REIT would use. derswap07, TKVM for your response ! Further to my previous questions, which one shall we use ? Hedged or un-hedged ? Levered or non-leveraged ?
Depends on the manager. Usually hedged and unlevered.
derswap07 Wrote: ------------------------------------------------------- > Depends on the manager. Usually hedged and > unlevered. derswap07, TKVM !
Good question; they expect you to explain what is the hedged NAREIT in EOC Problem #3, part C (“justify your choice w.r.t. returns, risks and issues concerning construction of real estate and REIT indices”). I couldn’t find the definition in the readings. The answer key says that using mortgage or hybrid REIT’s would eliminate the equity component, but that the NAREIT’s 95% equity REIT’s. A fun fact that I don’t think is in the CFA readings.
have you missed out ‘unlevered’ in 3rd line? is it the UNLEVERED index that represents real estate property values and does not represent the borrowing used to invest in the properties as the REIT would use. derswap07 Wrote: -------------------------------------------------------> > Levered refers to the fact that most REITs use > leverage or borrow to invest in real estate > properties whereas the index represents real > estate property values and does not represent the > borrowing used to invest in the properties as the > REIT would use.
Yes level3aspirant, Looks like that I did not put that word in. It fits the definition. Thanks for pointing that out.