In the recent downturn, for instance, many real estate investment trusts fell far more than their underlying net assets implied, even after the big writedowns made on property values.

Bond ITs may be more stable, depending on exactly what they invest in. If it’s corporate bonds and the like, this has equity-like correlation, too.

I still prefer property ITs (and big REITs like British Land) to OEIC funds (unlisted unit trusts), however, as the latter actually closed their doors and stopped investors withdrawing money at all in the downturn (due to their need to sell property to meet redemptions).

At least ITs gave you a choice of getting some money back, however unpalatable.

In my opinion most private investors only need government bonds in the bond section of their portfolio, and arguably UK investors just need gilts (assuming lots of diversification elsewhere). If desired, though, iShares ETFs provide one easy way to add European and US government bond exposure to these asset classes.

Gilts can be very practically bought and held in an ISA without using an ETF, and it may be cheaper and give you more of the benefits of the asset class more ‘cleanly’ than using an ETF or an IT.

See this post: http://monevator.com/2010/12/16/buy-gilts-directl-or-invest-in-a-gilt-fund/

As a newcomer to DIY investing I try to use IT’s in my SIPP but when asset allocation models refer to ‘Bonds’ or ‘Property’ are IT funds invested in these areas sufficiently non-correlated to count as the ‘Bonds’ & ‘Property’ classes the models refer to or, should they be counted as equities?

Despite this data there are definitely asset classes in which investors can still get diversification benefits.

Research by Agcapita Partners, a Canadian agriculture private equity firm, shows that one of the beneficial investment qualities of farmland in North America is that is has a very low (slightly negative = -0.13) correlation to stock market returns. In general, this has meant that by adding NA farmland into a stock portfolio you improved diversification benefits. By way of example, when stock markets were falling globally in 2008, Canadian prairie farmland went up approximately 10% in value.