Property Feeder lost 5% on purchase?

slowpoke_rodriguez

JohnRo wrote: »

They also email the date appropriate KIID as fund purchases are placed.

(That said the KIID's charges description doesn't detail the spread.)

But the spread is detailed on the general information page...

https://www.charles-stanley-direct.co.uk/ViewFund?Sedol=BK35F40&Isin=GB00BK35F408&PreviousSearchResults=%2FInvestmentSearch%2FSearch%3FSearchText%3Dproperty%2520feeder

Linton

Unlike many property funds the L&G fund invests in real property rather than property company shares. One can imagine that purchases to some extent and withdrawals even more involve significant extra costs as the fund cant simply sell off a bit of a building to pay you when you sell. So they have a choice as to whether they charge the specific customer instigating the transaction or spread the costs over all customers. By having a bid-offer spread they discourage short term investors. Long term investors recoup the cost beacuse they dont have to pay for other people's transactions.

Some non-property funds also operate a bid-offer spread or dilution levy for that reason. Vaguard Life Strategy in particular used to but it looks like they have now stopped.

Rollinghome

MarkBargain wrote: »

My eyes always look at the Total Expense Ratio (TER) which at 0.63% looked good. The 5% is equivalent to eight years' fees in one hit on that one. As you wrote, lesson learnt.

Whether there's a disadavantage in using a dual-priced fund with a spread largely depends on how long you intend to keep the investment. There's always costs for a fund to trade. With a dual-priced fund the cost is explicit when you buy in, whereas with a single-priced fund it would be born by all investors in the fund with long-tem investors effectively subsidising short-term investors. Either way, there are costs to be born by someone.

L&G give a breakdown of typical costs:

Buying a property
Agent fees (for advising on the property) 1.00%
Legal fees 0.75%
Stamp Duty Land Tax 4.00%

Selling a property
Agent fees (for finding a buyer) 1.00%
Legal fees 0.75%

As they like to put it:
The bid/offer spread encourages long-term investment discipline. The cost involved in the ‘round-trip’ of selling a dual-priced fund helps create a community of investors who recognise the importance of investing for the long term.


PS. I notice this thread refers to a "feeder fund" rather than a PAIF which may be more of a disadvantage. Within a PAIF investors can receive income prior to deducting corporation tax but not with a PAIF feeder fund - so no tax to pay on PAIF income within an ISA.

gadgetmind

I avoid investing in property via open-ended funds. They have huge liquidity issues when everyone runs for the doors, and often have to bolt the doors while they do the old fire sale thing.

Linton

gadgetmind wrote: »

I avoid investing in property via open-ended funds. They have huge liquidity issues when everyone runs for the doors, and often have to bolt the doors while they do the old fire sale thing.

True. On the other hand surely the whole point of investing in real property is diversification. By using ITs you are increasing the correlation between property and share equity as the premium/discount varies with general share prices.

JohnRo

Linton wrote: »

True. On the other hand surely the whole point of investing in real property is diversification. By using ITs you are increasing the correlation between property and share equity as the premium/discount varies with general share prices.

Is there evidence that's the really case?

The Property IT share price is just a fund management method, the property assets those shares are (approximately) based on is what correlates surely. I accept the premium discount can be stretched but the underlying asset and not the general equity market dictate I would have thought.

Linton

JohnRo wrote: »

Is there evidence that's the really case?

The Property IT share price is just a fund management method, the property assets those shares are (approximately) based on is what correlates surely. I accept the premium discount can be stretched but the underlying asset and not the general equity market dictate I would have thought.

I believe we are talking about property funds that directly invest in property ("direct property") rather than investing in property companies. In this case the underlying asset is a collection of illiquid buildings with a fairly stable NAV. However I think you will find that the share price of a direct property IT is pretty much as volatile as anything else. In this respect is a direct property IT any different to a property company? A direct property unit trust/OEIC however will be priced mainly on the basis of the property NAV.

gadgetmind

Linton wrote: »

the underlying asset is a collection of illiquid buildings with a fairly stable NAV

Plus a whole load of cash to cover people selling, which is a drag on income, and when the cash runs out, properties have to be sold for whatever they can get, and still often have to block sales, often for years.

Meanwhile, the REITs pick up the properties at good prices, and canny investors pick up REIT shares on a bit of a discount. Buy low, sell high.

BTW, I'm now reducing my property exposure as it seems to be getting far too popular.

masonic

Linton wrote: »

However I think you will find that the share price of a direct property IT is pretty much as volatile as anything else. In this respect is a direct property IT any different to a property company? A direct property unit trust/OEIC however will be priced mainly on the basis of the property NAV.

I think there is an appreciable difference. While it is certainly true that direct property ITs are a lot more volatile than the corresponding OEICs - to the extent that their day to day movements more closely resemble equities, the gross trends over 10 years mirror their OEIC counterparts quite closely. I don't think the same could be said of a property company.

The volatility of direct property ITs can be played to your advantage, providing you do not become a forced seller.

JohnRo

In this respect is a direct property IT any different to a property company?

It is a property company, and there's no doubt IT property share prices are more volatile than open ended property unit prices.

I'm questioning whether IT property shares have any direct correlation with the general equity market as opposed to their underlying property assets, beyond the volatility. I may have misunderstood.

BTW, I'm now reducing my property exposure as it seems to be getting far too popular.

Could the same not be said for equities generally? I've taken a view, as with everything else, that a somewhat dependable income stream, a reasonable globally diversified allocation and rebalancing should take care of these things eventually.

The worry I have is that the helicopter money and zero cost borrowing for the banks & city gamblers has funded M&A activity, financial engineering and malinvestment to the point all valuations, across the board, have become detached from (real world) economic reality. Time will tell as always.