Exposure to Global Property?

Chargem

I'm currently researching some investment ideas to put into action later this year, and am currently looking at splitting my money between Cash, Shares, Bonds, Peer to Peer lending and Property.

I have ideas on what I want to invest in for most of these asset classes, with the exception of property (I don't have enough funds to buy to let).

I am looking at a few different funds of REITS (such as Schroder Global Property Income Maximiser) however a lot of these make reference to income coming from derivatives as well as dividends, which from the fund material appears to be forfeiting some capital gains to maintain higher income.

The derivative part gives me cause for concern, however if I am only interested in total return should I care whether returns are capital or income?

I would also be interested in how other people invest in global property in their portfolios, or has any other REIT or global property fund recommendations which I can research.

Shaolin_Monkey

The Income Maximiser fund uses derivatives to increase the yield. Specifically it uses a covered call option strategy, where the manager sells call options (basically the right to buy a share at a specific price at a point in the future) on shares they are holding, and the premiums received for the options adds an extra income stream.

The downside is that it can limit capital growth as the manager may be obliged to sell shares at lower than market prices if the share price goes above the options strike price. This will be more likely to happen when share prices are rising strongly.

Unless you need the income it's questionable whether that will do any better than a conventional fund. There also might be tax implications to consider if this is outside of an ISA or pension, as income is generally taxed less favourably than capital growth.

There are various global REIT funds that do not use that strategy (including Schroders fund without the option overlay) and trackers from the likes of Blackrock and iShares. Personally I don't currently have any of them but I have considered them, and also direct property investment trusts like FCPT Ltd. I don't like direct property unit trusts as the illiquid nature of brick and mortar property doesn't really suit open ended funds IMO, and as a result they tend to hold a lot of cash to allow for redemptions.

Chargem

Shaolin_Monkey wrote: »

The Income Maximiser fund uses derivatives to increase the yield. Specifically it uses a covered call option strategy, where the manager sells call options (basically the right to buy a share at a specific price at a point in the future) on shares they are holding, and the premiums received for the options adds an extra income stream.

The downside is that it can limit capital growth as the manager may be obliged to sell shares at lower than market prices if the share price goes above the options strike price. This will be more likely to happen when share prices are rising strongly.

Unless you need the income it's questionable whether that will do any better than a conventional fund. There also might be tax implications to consider if this is outside of an ISA or pension, as income is generally taxed less favourably than capital growth.

There are various global REIT funds that do not use that strategy (including Schroders fund without the option overlay) and trackers from the likes of Blackrock and iShares. Personally I don't currently have any of them but I have considered them, and also direct property investment trusts like FCPT Ltd. I don't like direct property unit trusts as the illiquid nature of brick and mortar property doesn't really suit open ended funds IMO, and as a result they tend to hold a lot of cash to allow for redemptions.

Thank you, the non-derivative REIT fund was exactly what I was looking for.

grey_gym_sock

there are also trackers for global property shares.

e.g. tracking the FTSE EPRA/NAREIT Developed Index, there are both:

Blackrock CIF Global Property Securities Equity Tracker - a fund (class 'D' units are cheaper - c. 0.33% TER, but class 'A' is more widely available - c. 0.67%).

HSBC FTSE EPRA/NAREIT Developed ETF (HPRO) - 0.4% TER, plus dealing commissions, since it's an ETF.