In spite of the challenging global economic backdrop, direct property investing has remained competitive against other asset classes in recent years.
Robert Boag, manager of the UK Commercial Property investment trust, explains: “This resilience is attributed to the solid income return the asset continues to deliver, which offers protection against inflation. In recent times it has reasserted its credentials as a genuine diversifier of investment risk between asset classes.”
The IMA Property sector is made up of a mixture of what are commonly referred to as ‘bricks and mortar’ funds – those that invest in property directly – and those that are made up of property-related equities. The latter will be covered in next week’s Investment Adviser.
There are roughly 14 bricks and mortar property funds in the sector that is made up of 43 constituents in total, making it impossible to compare the sector effectively as a whole. Therefore, most of the direct bricks and mortar funds have developed benchmarks that compare them against each other.
On page 31, Aviva’s property manager Philip Nell, notes: “I was instrumental in getting all the authorised (predominantly direct) UK property funds together a year or so ago to ask IPD to produce a quarterly report which shows our performance at a direct property-only level and at an all benchmarked assets against the whole authorised (and predominantly UK direct) group.”
Similarly, the Ignis UK Property fund, reviewed on page 32, compares itself against just the direct property funds housed in the IMA Property sector, although it still uses the IPD Property index of commercial property price changes as its benchmark.
Manager George Shaw, like a number of other property managers, remains focused on prime commercial property in London and the South East, suggesting that this will “prove advantageous” in the long term.
However, he does admit that pricing for less prime ‘secondary’ property markets has started to stabilise and yields are beginning to look more attractive. Jason Baggaley, manager of the Standard Life Investments Property Income trust, agrees: “We are seeing increasing interest in the real estate investment market and buyers are looking across the risk spectrum, from prime long let income to secondary real estate.
“Care is still required and buying secondary assets needs to be undertaken on the asset fundamentals. Supply remains low for good quality accommodation in most markets, which gives opportunity to add value for investors.”
As property continues to recover from the global financial crisis, investor confidence in the asset class will also start to return. The question now is whether direct property funds, or those that invest in securities, is the better option.
The picks
F&C UK Property
Co-managed by Julian Smith and Guy Glover, this fund invests in “directly owned, income-producing property”, according to its factsheet. Since inception in June 2010, the fund has returned 5.2 per cent and currently has 21.8 per cent of the portfolio in the ‘retail warehouse’ sector – the largest holding, at 14.7 per cent, is a property occupied by Home Retail Group (parent of Argos, Homebase and Habitat).
Standard Life Investments UK Property trust
This fund seeks capital growth over the long term and invests in a mixture of leasehold and freehold properties. Manager Nigel Chapman has been at the helm of the fund since August and since then has produced a 7.1 per cent return.
Editors picks
Schroder Real Estate Investment Trust
This closed-end fund is among the best performers on a share price total-return basis in the AIC IT Direct Property-Direct UK sector. Its three-year numbers show a return of 22.68 per cent. The trust is currently trading on a discount of 9.5 compared to its net asset value.
