"Real" property investment funds

fwor

Until around a year ago my investments included a fund which invested in actual property - comprising around 8% of the total amount that I have invested.

But when I made some changes last year (essentially to reduce the management fees I was paying) I made what I think is a mistake, and replaced it with the same amount invested in Blackrock CIF Global Property REIT (G6IA). It's done Ok but, as others have pointed out, it is probably not a good way to diversify my (otherwise equities-biased) portfolio!

So, my question: Can anyone suggest any well-regarded "genuine" property funds that I should consider? I should add that - in accordance with the rules of this forum - I know not to interpret any suggestions as recommendations.

kidmugsy

There's a fund called Hearthstone, and a company called Grainger, that invest in "residential property". Presumably they have competitors.

Or is it commercial property that interests you?

webnibbler

fwor wrote: »

I made what I think is a mistake, and replaced it with the same amount invested in Blackrock CIF Global Property REIT (G6IA). It's done Ok but, as others have pointed out, it is probably not a good way to diversify my (otherwise equities-biased) portfolio!

I hold iShares FTSE EPRA/NAREIT (IWDP) which is a global REIT probably very similar to your Blackrock ETF holding. Both these funds will be commercial property.

Out of interest, why do you feel it's not adding diversification? True, commercial property will probably have a high correlation to equities but will add some diversification benefits.

Before adding a residential property fund I would consider your overall financial assets. If you own a home you already have a large proportion of your overall assets in residential.

Residential funds can also be illiquid, if demand from investors grows to withdraw then the funds can limit withdraws or close all together, as happened in 2008 / 09.

fwor

Sorry, yes - should have said: commercial property.

My understanding is that the Blackrock REIT invests specifically in the shares of companies in the property sector. The reason that I think it was a mistake is that it's still entirely equities based - so it provides no protection (or very little protection) if there are major across-the-board falls on the stock markets.

From a brief look, IWDP does pretty much the same thing, and so isn't really diversification if your portfolio is otherwise mainly in equities.

Hence I was looking for a fund which invests in commercial property itself - whose value should (in theory at least) be almost completely independent of stock markets.

I understand the possible lack of liquidity (I experienced that myself in 2008) but that's not a problem for me, as I don't expect to be in a situation where I ~have~ to withdraw funds from it at short notice.

dunstonh

Bricks and Mortar funds are available and you can find them in the UT/OEIC property sector. The bright spark who thought that putting bricks and mortar funds in the same sector as property share needs a slapping.

bowlhead99

fwor wrote: »

Hence I was looking for a fund which invests in commercial property itself - whose value should (in theory at least) be almost completely independent of stock markets.

I understand the possible lack of liquidity (I experienced that myself in 2008) but that's not a problem for me, as I don't expect to be in a situation where I ~have~ to withdraw funds from it at short notice.

If liquidity is no problem because you do not expect to ever need short notice access; then it doesn't matter if the stock market is sometimes down in the short term and drags down your listed property company holdings, right?

That Blackrock real estate investment trust invests in a large number of internationally located real estate investment trusts across a number of markets with a number of specialisms, trying to follow an index by either holding the companies in the index or derivatives. Yes, you are buying exposure to shares in companies which own real estate. Some of those are quite specialist in the types of property or property developments they buy. Some use gearing/leverage to buy a large gross portfolio with borrowed money and are inherently quite risky. However as a general rule, their performance will be pretty different to businesses like oil and gas companies, banks, retail businesses, manufacturing companies, tech firms etc. It is a different sector from other types of equities so does provide diversification.

However, it's true that you're not buying the properties themselves, you're buying companies who own properties and whose share prices are driven by supply and demand, so your value is subject to the vagaries of market demand for those types of companies at a point in time and not necessarily an independently-assessed valuation of the underlying property that the companies chose to buy for your benefit.

But, is it better to own a share in a company that could be hammered in a stock market crash along with all other companies, so you can't exit at the fair value of the underlying real estate assets? Or is it better to own a direct property fund that can't meet its investors redemption requests during a property market crash, because property is illiquid, so you... can't exit at the fair value of the underlying real estate assets? The route you pick will determine what type of market gives you a problem, but you can still get problems whichever you pick.

At the end of the day if you're looking to diversify your portfolio, direct property is something which does not have a daily traded price moving in step with the stock market indexes, and so if property is up and general equities are down, you should hopefully be able to re-balance and use some of your property money to feed back into equities. While if you are only holding indirect property wrapped up in stock-market-listed holding companies, you may not be able to dump them for anything like a fair value when there's an equities crash on, so your plans to re-balance and take advantage of low equities and high property prices, can be scuppered.

For that reason, funds of REITs are not quite as good at diversifying a portfolio as the underlying real assets would be. They have their flaws. So, you'll hear the sensible comments on these forums telling you to consider your asset allocation carefully. However, clearly the long term driver of the NAV of a REIT or a fund-of-REITs, is the demand for the types of properties it holds, and the rental income available from tenants of those types of commercial properties. This is the same long term driver of the NAV and incomes of a typical direct property fund. As such, I wouldn't ignore REITs completely, they have their uses.

There are a number of UK traditional property funds and PAIFs you could use and you'll find them in the 'property' section of fund browsing tools. However once you start looking internationally, using listed corporate vehicles to buy into foreign REITs seems to be a sensible way of taking exposure.

Finding a property manager who specialises in direct commercial real estate opportunities on a truly worldwide basis and has a great track record, seems like a big ask. But finding listed international equivalents of something like a British Land (but in a different country) is not too arduous and so a real estate investment trust tracker might be a useful thing to hold in some markets.

Of course, a portfolio which is too broad (e.g. something with 100+ holdings where the top 10 are less than a quarter of overall NAV) is not necessarily going to get you the best returns, just an approximation of some broad returns generally available from the sector.

I'm going to steer clear of specific recommendations because any chump can give out tips and whatever I suggest will inevitably crash hardest. But perhaps the above is food for thought if you're not quite sure why you should be changing tactics from the ones you thought were OK a year ago. Personally I do hold a number of specialist REITs as well as plenty of equities and non-equities and alternative funds and a direct property fund or two... but we all have our own preferred level and type of risk and diversification etc etc.

Sobryma

There's a few fund ideas on the following (I hold Bestinvest rated funds through their Advisory & Managed portfolios), the Trustnet table provides FE AFI constituents on its Fund Ratings tab.

https://select.bestinvest.co.uk/InvestmentSelector

http://www.trustnet.com/Investments/Perf.aspx?univ=O&Pf_Sector=O:PROPERTY

tg99

May also be worth noting that following the liquidity and redemption issues in 2008 post-Lehman, many of the UK commercial property open-ended funds today hold larger cash balances and this will ultimately dilute returns in a rising market (but does mean you might have more chance of getting your money out in a liquidity squeeze). However, in order to lessen the impact of such dilution, some will tend to instead hold some of their liquid buffer in property shares / REITs or equitise their cash using property derivatives.

For what it's worth I tend to hold a mixture of REITs and open-ended funds since both have their pros and cons in different market conditions. If looking at open-ended funds then is worth investigating the strategy followed, for example some like Threadneedle will tend to offer a slightly higher yield given a higher holding in 'good secondary' assets versus some of their peers who might have more of a 'prime' focus and thus lower yield.

Finally, if you are intending to hold the fund in an ISA/SIPP then buying the PAIF version of a property fund will give you a higher return than the non-PAIF 'feeder' version as it is more tax efficient.

fwor

Some very well made points - I think that on reflection I may have been over-reacting!

I guess the relevant point for me is that there are pros and cons - but if I'm looking to stay in the fund for years (I am), short-term across-the-board falls on the stock market are not really something I should worry about.

So I think I'll just leave it as it is. Thanks for the replies.