Bid / Offer spread - a newbie mistake

Kendall80

I got hit on a single equity share when I first got started. 8% down straight away on the spread. Fortunately it was only on 1k but I still felt pretty silly

bowlhead99

Plus wrote: »

However all the Real-Estate Investment Trusts that I've managed to find are actually property development companies in disguise: they build shopping centres and whatnot, doing the designs, the construction, refurbishment and so on, as opposed to simply buying existing properties ready-built and leased and then collecting rents. That makes them very well correlated to equities, rather than a diversifying asset.

I don't know if PAIFs are any different, or is it just another structure for REITs?

A lot of property funds do some element of development, and certainly things like refurbishments, because it can be a lucrative way of making money from land and buildings. The REIT rules do mandate a minimum % amount of their activities must be property investment business vs other things like property development business, holding shares and cash etc. For PAIFs that percentage is actually a bit lower, because of the liquidity problems inherent in open-ended structures as you suggest, which means it's acknowledged that it's harder for them to hold a high proportion of illiquid assets.

Not all REITs have development at the heart of what they do:

For example I'm invested in the specialist Primary Healthcare Properties(PHP); at last year end they had a £1bn portfolio of let properties generating their rent roll of £60m; but only ~£35m of development in progress (including costs to complete). So that doesn't strike me as a 'property development company in disguise'. They do however have loan-to-value of 60%+ (debt from a variety of sources); so if equities tank because of a massive increase in prevailing interest rates, it would not exactly be good news when they want to refinance. But with their tenants being UK government/NHS they should have relative stability of income and the NAV would not be expected to be moving in step with FTSE100 shares or high street retail properties or commercial warehouse units.

Another one I hold is the much smaller Target Healthcare REIT (THRL). They are relatively new but the strategy is to buy their care homes - or portfolios of them - from someone else, ready built (even if they pay someone to make something new and purpose-built for them rather than it being an existing property); they are not developers. Long term target LTV for that one is a more modest 20%.

Obviously both those examples are specialist single sector and so are not recommendations, just examples of REITs which are not 'developers in disguise'.

On the PAIF vs old-style OEIC vs REIT, you might find this old presentation from Hearthstone to be of interest if you're trying to research what they are all about. It makes PAIFs sound pretty good, but then they are a a company who was trying to get people to invest in theirs http://www.hearthstone.co.uk/getattachment/06c9307a-2e42-4011-b5bf-b06ac8b1608f/What-is-a-PAIF-06-09-12/

I haven't read every word but it smells about right; it's also nice that they included the speaker's notes with the slides rather than just the presentation bullet points.

Google is quite handy for finding stuff like this. The world of investments is complex, so people who decide they want to DIY (rather than pay an advisor to construct a suitable portfolio and find them efficient vehicles through which to hold it), really do need to DYOR properly to find out the options.

For example, Arbster perhaps now has the choice of 'losing' his 5% spread to get out of the L&G feeder and into their main PAIF fund, or simply making do with 80% of the income he should be getting. If his investment to date is significant, both could be costly. When he tries to switch into the main fund he might realise that AXA's platform doesn't handle PAIFs so he needs to use a different provider to actually give him access to the tax efficient versions of the funds he wants. In doing so, his research may uncover that (e.g.) Youinvest offer PAIFs and only charge annual platform fees of 0.2% (plus transaction fees) instead of AXA's 0.35%.

The good thing about being a newbie investor is that the mistakes you make don't cost you an awful lot in terms of actual £££s because the beginning of your investment career is not the time when you have the most at stake.

arbster

bowlhead99 wrote: »

Arbster perhaps now has the choice of 'losing' his 5% spread to get out of the L&G feeder and into their main PAIF fund, or simply making do with 80% of the income he should be getting. If his investment to date is significant, both could be costly. When he tries to switch into the main fund he might realise that AXA's platform doesn't handle PAIFs so he needs to use a different provider to actually give him access to the tax efficient versions of the funds he wants. In doing so, his research may uncover that (e.g.) Youinvest offer PAIFs and only charge annual platform fees of 0.2% (plus transaction fees) instead of AXA's 0.35%.

The good thing about being a newbie investor is that the mistakes you make don't cost you an awful lot in terms of actual £££s because the beginning of your investment career is not the time when you have the most at stake.

Thank you once again - lots of interesting information on the nuances of Property investment, which I will catch up on over the coming weeks.

My investment in the Feeder fund is relatively modest, thankfully, and I'll be avoiding any further investment into it over the remainder of this tax year. I went with the AXA platforms due to the fact they were offering to waive platform fees for the year. Admittedly, this is likely only to save me £80 versus Youinvest's charges, but the transaction fees would have killed me with the fund juggling I've found myself doing as I learn more about this interesting passtime. I will almost certainly be moving platforms in April/May 2016, although I hope then to have settled into a regular cadence of investing that allows me to make a more reasoned and hopefully longer-term platform selection.

As you rightly say, the cost of my mistakes is relatively low right now, and certainly less than the gains I'll make over having the cash offsetting my mortgage at 1.19%. However, I'm keen not to make too many more.

Freecall

arbster wrote: »

As you rightly say, the cost of my mistakes is relatively low right now, and certainly less than the gains I'll make over having the cash offsetting my mortgage at 1.19%. However, I'm keen not to make too many more.

Never forget that these small early losses due to 'mistakes' are really an investment in your own education.

We have all done it and usually end up wiser as a result.