Keep an eye on Merlin’s move into property

With £4.7bn of assets under management, the flagship Merlin Income Portfolio delivered 104.4 per cent in the past 10 years, ranking it third in the IMA’s Mixed Investment 20-60% Shares sector of cautious funds.

So we were very interested when in April last year the team told investors it was “beginning to do some digging” to find a property investment, viewing it as an “income plus” asset class that had been through a “torrid time”.

This doesn’t reflect well on the mainstream property fund options available to UK investors John Kenchington

Last week Jupiter announced that – one year on – the team has made its first bet on the sector in a decade, adding a UK commercial property fund to two of its biggest portfolios.

This is a significant trade and one that smart investors – particularly those looking for decent income – should take note of.

From the point of view of the Merlin team itself, while its long-term macro calls have been largely accurate, things haven’t gone entirely smoothly during the bull market of the past few years.

Major bets on gold to insure against any negative outcomes from QE have detracted as investors have gone risk crazy. In recent years weightings in emerging market equity and debt exposed the team to some of the pain suffered in these markets. More recently, a beefy Japan weighting has detracted as the ‘third arrow’ of economic reform seems to be losing its flight.

The team shook up its selection of favoured fund managers last year to freshen things up, and possibly now this property move also represents a bid to make some fresh progress.

For one thing these satellite bets give the team a means of avoiding the problem of painting itself into the corner of having a portfolio dominated by equities, as we potentially near the top of the market.

What we can be sure of is that this property investment will have been subject to a great deal of meticulous research and diligence in a time when the Merlin team looks to cling onto its leading 10-year cumulative returns.

So let’s take a look at the new investment.

It’s a fund set up solely for Jupiter (at this stage) by ultra-exclusive Mayfair Capital Investment Management, which serves solely institutional clients – chiefly charities.

It consists of eight or nine extremely experienced property surveyors who will essentially recommend investments to the Jupiter Merlin team before executing the purchases within the fund – a tax-efficient fund based in the Channel Islands.

Let’s face it, it doesn’t reflect well on the mainstream property fund options available to UK investors – or the UK’s domestic regimes for property funds – that Jupiter felt that after a year’s research it had to opt for such a bespoke arrangement.

John Kenchington is editor of Investment Adviser