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An Australian investors portfolio (worth $1m) is invested in Equities (60%) using the ASX 200 index ETF and Bonds (40%) using a Bloomberg AusBond Composite

An Australian investors portfolio (worth $1m) is invested in Equities (60%) using the ASX 200 index ETF and Bonds (40%) using a Bloomberg AusBond Composite Index ETF.

ASX 200 is an index consisting of the top 200 stocks listed on the market and weighted by capitalisation. The Bloomberg bond index is a composite bond index consisting of Corporate investment grade and Government bonds.

The investor wishes to reduce overall portfolio risk and improve liquidity of the portfolio by adding EITHER an Australian Hedge Fund or an Australian REIT.

Explain which investment is best suited for inclusion in this portfolio, assuming an allocation of 30% to this investment and the other two asset classes reduce in weight on a pro-rata basis.

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