Real Estate  

The pros and cons of hybrid property funds

Some of its Reit exposure includes 4.4 per cent in Primary Health Properties, a company that invests in healthcare real estate let on long-term lease, and 4.3 per cent in Vonovia, a German real estate company that provides housing-related services. It also includes Supermarket Income Reit with 4 per cent.

Over the three years to June 30 the fund has returned 10.13 per cent, above the sector’s 4.7 per cent. 

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Pros

The obvious benefit to a hybrid fund is that, due to their increased liquidity, they should not be liable to the same withdrawal runs that have plagued open-ended property funds in the past few years.

Ben Yearsley, consultant at Fairview Investing, said one of the issues with holding an open-ended property fund, apart from the risk of gating, is the high level of cash held in anticipating of withdrawals.

“At least with a hybrid fund, you’re getting full property exposure,” he said.

“They give you the dampened volatility of owning physical property, but the liquidity of Reits.”

Over the short term investors will experience more volatility as a result, but in the long term the results should outperform cash, the value of which is being eroded quickly due to the current high levels of inflation.

Cons

The main issue is the lack of choice in the sector. The CT and Time funds are the only two hybrid property funds available to UK investors, and the Time fund doesn’t have more than a year of performance history. 

The CT fund also has no exposure outside the UK, so if investors are looking to diversify geographically, they will have to take a risk on the Time fund, which only has 11 months’ worth of returns.

sally.hickey@ft.com