Evaluating diversification strategies for direct property investment portfolios

This paper evaluates diversification strategies adopted for direct property investments in the Nigerian property market. Annual holding period returns were calculated from the data on rental transactions and capital values for the 1998-2003 period. Under the assumption that investments are held long and that constant correlation model or excess return to standard deviation represents the covariance structure of assets' returns, the findings revealed that property type and geographic naïve diversification strategies underperformed most of the efficient portfolios constructed using constant correlation model. Most of the performance results were found to be statistically significant at the 0.05 level. The results suggest that an efficient portfolio may not be more efficient than a naively diversified portfolio in all cases.