Property  

Alternative options to avoid the property boom

This article is part of
Alternative Investments - September 2014

Memories of being trapped in property funds have now faded and support for the sector is booming.

Property was severely impacted during the depths of the financial crisis so price recovery was inevitable, but the bandwagon has now, arguably, been well and truly jumped on with the IMA Property sector topping the sales charts in May.

Beyond this, fund selectors have been increasingly bullish on the sector with multi-managers, including JPMorgan Asset Management’s Tony Lanning, increasing exposure, while Jupiter’s John Chatfeild-Roberts bought into direct commercial property for the first time in a decade in April after backing the Mayfair Capital Commercial Property fund.

Broadening horizons

So given many investors have piled into property, those seeking some exposure may be wise to look to parts of the sector which have not experienced such huge support already.

Rob Burdett, co-head of multi-manager at F&C Investments, says it is now “very” important to diversify property holdings.

“Closed ended funds are seeing their share prices trade at premiums to the net value of their assets and their open-ended counterparts have cash drag.”

The issue with open-ended property funds, as Mr Burdett points out, is that to ensure they have daily liquidity for investors wishing to sell, they need to hold cash because they would be unable to divest holdings at will if they invest in physical property.

The multi-manager added that “industry grandees”, such as commercial property millionaire Nick Leslau, “are selling”, which is perhaps another consideration for investors.

Infrastructure

One area many investors have flocked to is infrastructure as this offers a different flavour of property exposure. Such trusts often invest in public-private partnerships – a mix of government and private cash – to build projects including schools and hospitals.

The attraction to investors is working with the public sector, which engages in long-term contracts that often include some form of inflation protection. However, because of this, the shares in infrastructure investment trusts now trade at significant premiums to the value of their portfolios.

John Laing Infrastructure’s shares trade at nearly a 12 per cent premium to the net asset value of the portfolio while Hicl’s shares are on a 15.5 per cent premium, according to data from the Association of Investment Companies.

Investment trust analyst Paul Locke, of Westhouse Securities, also recently warned these trusts had been “relatively untested” when interest rates and inflation are rising so investors should acknowledge this.

Alternative property

In terms of other alternative property holdings, Mr Burdett has backed Medicx, an investment trust which aims to deliver returns by securing rental income and capital growth from the ownership of a portfolio of purpose-built, primary healthcare properties in the UK. The fund has returned 56.2 per cent since launch in 2006.

The manager also backs the £321m Darwin Leisure Property, an open-ended, Guernsey incorporated unregulated collective investment scheme which invests in leisure parks. The fund launched in January 2008 and has a portfolio of UK-based holiday accommodation. It aims to provide investors with income and some capital growth by improving the sites it owns.