The best way to invest in property

This article is part of
Guide to investing in property

Sunil Krishnan, head of multi-asset funds at Aviva Global Investors believes the benefits of  diversification give open-ended property funds the edge.

He says: “Property funds have attracted some negative attention because of fund suspensions and general concern about the outlook for tenant solvency and occupancy rates in the face of a recession. 

"That said, we think it’s important to see them in context. We believe they do offer diversification from equities and bonds, as they are less at the mercy of day-to-day investment sentiment. 

"Many of the recent suspensions have had more to do with valuers unable to do their jobs of surveying properties, than mass outflows from the funds themselves. 

"While the asset class retains sensitivity to the health of the real economy, if anything the co-ordinated behaviour of the Treasury and the Bank of England should provide more support to ensure tenants remain current, and their businesses afloat, than we have seen in previous deep recessions.”

Charlie Parker, managing director of Albemarle Street Partners, a discretionary fund management firm, says he tends not to use open-ended property funds.

He says: “As a point of principle we avoid bricks and mortar property funds. We recognise we are in a minority on this but tend to stick to the principle that we like the underlying assets in which we invest to have as much liquidity as the vehicle they are contained in – to avoid situations where investors are surprised by suspensions.

"Going forward our view is that Reits will largely recover in line with wider equity markets and we do not see a simple portfolio of generalist Reits as a major diversifier.” 

Source: AIC/Morningstar

Luke Hyde-Smith, head of fund selection at Waverton says: “We do not hold and will never hold any open-ended, directly invested commercial property funds, the majority of which are currently suspended, but also hold high cash balances and have significant exposure to the most challenged areas such as retail and offices.

"We believe the most appropriate means to invest in the property sector for those that require daily liquidity is through listed real estate investment trusts, or closed-ended investment companies.” 

Alex Price, chief executive of Fiera Real Estate, an open-ended property fund which does not offer daily dealing, says the correlation between equities and the property market is generally very low, though there is a much closer correlation between the performance of investment grade bonds.