Property Funds – A Start

    Property Funds – A Start

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    The table below represents property fund investment options available via an IFA or fund supermarket.

    Almost all the indirect routes invest in commercial real estate as opposed to residential and some give exposure by themselves investing indirectly i.e. via other funds or listed equities. We will explore the pros and cons of this later, but essentially there is another level of management (and therefore fees), stock picking and diversification at play.

    The fund that that enables investors to gain access to residential real estate is the Hearthstone Fund, which we will look at in closer detail in the coming weeks. Feel free to play with the table below, it reflects recent data as of December 2014, but it’s not live. The majority of information here will be updated when the individual funds are valued on a (typically) monthly basis. For a live version, please see this link to source table

    Fund Table

    Property Fund Table



    Risk

    Risk is measured here by Financial Express’ own methodology. Essentially it is a relative measure, as opposed to absolute, set in relation to the FTSE 100 and responsive to recent events. A score of less then 100 should represent a risk lower than that of the FTSE 100 and vice versa, or in their own words:

    “Weekly volatility is measured over three years with recent behaviour counting more heavily than earlier behaviour. FE Risk Scores are calculated weekly, and can be tracked over time. Cash type investments will have scores close to zero, while mutual funds will tend to have scores in the 0-150 range, while equities will generally be in excess of 100. The FTSE 100 is always scored at 100. There is no upper limit.”

    Risk like return can mean different things to different people and be measured a multitude of ways. The degree to which we should be concerned about relative versus absolute risk is for another day, but for the sake of time and argument we’ll take FE’s risk score and map it against yield to see whether this throws up any outliers for further investigation.

    Property Funds Yield v Risk Blue

    Interestingly, by their own measurement FE are suggesting that a third of property funds are more volatile than the FTSE 100. Also only 4 funds that they cover provide a distribution (dividend yield) higher than 5% which is roughly inline with market wide buy-to-let required income returns. These are:

    • Schroder Global Property Income Maximiser A Acc Schroder UT Managers (6.9%)
    • MGTS St Johns High Income Property R Inc Margetts Fund Management (7.2%)
    • SKAGEN SKAGEN m2 A GBP SKAGEN (9.9%)
    • HC Mansion UK Student Accommodation Income and Growth A Acc GBP Host Capital Limited (6.0%)

    No clearly this is a little crude as we are ignoring potential capital returns, which is to say we are ignoring the fund managers’ ability to stock pick (acquisition selection), structure their portfolio (sectoral weightings), asset manage, and optimise capital structure (gearing). However, it’s a useful starting point.