Diff’rent property funds for diff’rent folks

A typical fund generates rental income from holding a number of properties, leased to businesses or private tenants.

In addition, as property valuations vary depending on quality, location or demand, there is some potential for capital growth.

There are a number of different types of property investment vehicles available for investors, providing them with access to a diversified pool of assets so they do not have to put their eggs all in one basket with one specific property asset and can be allocated funds based on their risk and return requirements.

Funds offer different levels of liquidity depending on the type of investor they are targeting, notes Philip Nell, manager of the Aviva Investors Property Trust.

This ranges from completely closed-ended funds, where the only liquidity available is through investors selling their units or shares to others, to daily priced and traded funds, where units or shares can be traded back to or issued by the fund manager.

Funds also operate under differing levels of regulation, from fully authorised funds which are available to all types of investor including the retail market, to institutional funds with lower levels of regulatory protection.

Property funds can also be differentiated by investment style, adds Guy Glover, manager of the F&C UK Property fund.

‘Core’ funds focus on prime property and established property locations, while core plus/value-add look to the less prime, more over-looked parts of the market to find assets that can be re-positioned to enhance performance, and fund can also be segmented by country.

Higher up the risk curve, there are opportunity funds which seek distressed assets and turnaround situations.

Like open-ended investment companies (Oeics), UK authorised property unit trusts (AUTs) are flexible open-ended funds where investors can generally withdraw their money when they choose by selling their shares or units back to the company managing the fund.

A Reit - or Real estate investment trust - is an investment vehicle that owns or manages a portfolio of property-related assets, either through direct ownership of property assets, mortgage debts or property shares.

Reits can be traded like a normal stock and are listed on the stock market, so the shares may trade at a premium or discount to the net asset value, depending on sentiment towards the company.

It is important that advisers look beyond the vehicle to see what specific assets they are investing in and the track record of the manager, Mr Glover said.

“A property fund’s returns are underpinned by its assets and every one has a unique set of attributes. Some funds may use leverage to support their activity and investors need to decide on the appropriateness of this given their risk preference.”