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Abstract
Property as an asset class plays an important role in Australian superannuation fund investment portfolios. This research examines the diversification benefits of direct and listed property in a mixed asset portfolio using nine different asset allocation models, including the industry superannuation fund conventional strategic investment approach. Over a 17-year sample period (1995 to 2011) direct property significantly outperforms all other asset classes in the industry fund balanced investment option. In addition, direct property figures more prominently than listed property across all investment strategies. Although statistically small, the contribution of listed property cannot be ignored as several strategies that included both property assets demonstrated improved performance. On looking at specific time periods, an average mixed allocation of direct property (16%) and listed property (5%) was beneficial across all strategies. Excluding unconstrained investment strategies, an increased 17% allocation to property (12% direct property and 5% listed property) is recommended for the industry fund balanced portfolio. This high allocation is backed by improved risk-adjusted return performance.