Talking Point  

Property is a good diversifier in a portfolio

Property is a good diversifier in a portfolio

Property can still work well in open-ended funds, according to Ben Seager-Scott, head of multi-asset funds at Tilney.

There are three ways to invest in UK commercial property, but if the aim is to achieve diversification, then open-ended property funds could be a good method, he said.

“There are broadly three options for investors: property securities, direct property in a closed-ended structure and direct property in an open-ended structure."

 Whilst more equity-like volatility in the short-term for the property securities and closed-ended routes is a feature of accessing the property market via those investment vehicles, that is not a feature of the open-ended property funds, he added.

Mr Seager-Scott said that while open-ended property funds have the well-documented problem of liquidity risk, they are genuinely diversified.

The problem with investing in property investment trusts is that they are listed on the stock exchange, so if equities fall in value, then the trust’s share prices are likely to fall, regardless of whether the underlying assets are performing better or not.

Mr Seager Scott said: “I think property can play an important role in the right portfolios, but careful consideration needs to be given to liquidity constraints and requirements as well as the other risk and return characteristics.”

Open-ended property funds hold large amounts of cash in order to be able to meet redemption requests from clients, although this significant weighting to cash means returns are usually lower. 

The M&G Property Portfolio fund, the largest such vehicle in the UK market, was suspended in December due to the volume of outflows. It has yet to re-open. 

Francis Klonowksi, an adviser at Klonowski and Co in Leeds said: “I would normally include property in all portfolios.

"My view is that its a diversifier from other asset classes, that’s the role it plays, and really I wouldn’t vary the risk level, depending on the client.

"Really I would increase equity exposure for a client that had a higher risk profile, and reduce it for a client with a lower risk profile, with property always there as a diversifier.”  

david.thorpe@ft.com

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