Property Tracker

Linton

I dont see your problem. From a quick look at your links if they have a list of addresses as their top 10 investments they are straight direct property funds. The feeder funds are OEIC front ends to a REIT which is a direct property fund. Feeder funds I think are used to simplify the administration of unit holders for people who dont need the full complex range of tax features of a REIT. For a normal investor they are the same thing. To see the underlying investments you may need to look at the breakdown of the master fund.

chockydavid1983

Thanks Linton, yes I was wondering what the word feeder meant in this context too.
From looking at the master funds, I can now see the %'s more clearly.

bowlhead99

Chocky:
Slight correction (though a little long, as usual) to avoid any confusion on terminology.

As mentioned up the thread, a REIT is a real estate investment trust, basically a company which holds property and is closed ended rather than open ended so you can't just buy in whenever you want at NAV, you have to compete with others to buy and sell the shares of the REIT on the stock exchange. The REIT holds direct property but lists its own shares in the stock exchange for people to buy at whatever price they can find someone to sell at, which might be far removed from the value of the REITs actual assets.

In Linton's post, he accidentally said the feeders are feeder funds collecting investors together to invest in that fund manager's REIT, but really meant that the feeders are investing in the fund manager's PAIF.

A PAIF is a Property Authorised Investment Fund, basically an open-ended fund (not closed ended like a listed REIT), which holds direct property. PAIFs, just like REITs, distribute multiple streams of income to their investors, which can include dividend income and interest income as well as net property income (a share of the proceeds coming out of their property rentals business). They are allowed to distribute all these types of income gross of tax without deduction.

Some types of investors might be prohibited from investing directly into a PAIF due to tax rules (e.g. a UK limited company is not allowed to own more than 10% of a PAIF directly) or because their investment platform of choice is stuck in the dark ages and hasn't got the systems to properly track and stream the different types of income. Those investors can invest in the Feeder, usually an open ended unit trust, which collects together money from those investors and invests it into the associated PAIF. The feeder pays tax on its property income but is then able to distribute the remaining net profit as a nice clean dividend which any platform can handle.

If you were an investor going through an ISA or SIPP with no tax to pay on any kind of UK income, you would want to invest directly into the PAIF so you didn't suffer any tax via the Feeder vehicle. However if you were a high rate taxpayer not using an ISA or SIPP you would probably find it useful to invest in the Feeder instead, who would pay a small amount of tax on its property income and then give you a profits dividend payment for the rest, which you could receive within your £5k p.a. annual dividend allowance.

With that distraction out of the way, I can confirm that all those four linked funds are open ended funds that 'pretty much, directly' hold property.

The first one of the four is a fund with property names and addresses of individual direct properties at the top of its list of holdings. The last three are dedicated Feeders which were set up to funnel your money through to exclusively invest in one PAIF on an open-ended basis, and those "master fund" PAIFs will have names and address of properties just like the first one.

With the Feeders, you invest in, they get money, the next day they invest that money into the main fund at the standard NAV price. You want money out, they redeem out of the PAIF and give it to you. The Feeders are not bidding on the stock exchange to buy into a bunch of underlying funds like the Blackrock Property Equity fund that launched this thread. In each case, they are basically 'direct, open ended funds', but acting as a "tax blocker vehicle" with a different tax treatment from the main PAIF "master fund".

chockydavid1983

Thanks Bowlhead as always.
I suspected that was what was meant when I looked at the master funds and they came up as PAIFs.
Thanks for the detailed explanation of feeder funds, that's a lot clearer to me now.

bowlhead99

chockydavid1983 wrote: »

Thanks for the detailed explanation of feeder funds, that's a lot clearer to me now.

I never really tire of explaining it, because I feel sorry for people who don't understand investing options and post "critique my DIY ISA allocation" portfolios where their property allocation is through a Feeder eating 20% of their property income distributions in taxes, yet they are using an ISA (or SIPP) via a provider who offers direct access to the PAIF which they're not using. It can be a pretty common mistake given some funds only converted to a PAIF offering within the last year

That, plus assuming that Blackrock's fund of REITs is just the same as a nicely diversified version of a direct physical property fund, are two incredibly common errors which DIY investors make and professionals don't, because execution-only fund supermarket platforms don't have any warning measures that say,"hold on, you have not had your account very long, please confirm you understand the pros and cons of what you are doing".

It's just a "have you read the prospectus and KIID" to which the punter blindly clicks "yes", because that's how he got rid of the "have you read the license agreement" message on his iPhone.

When it's your retirement fund it should be be "yes" and then "yes reaaaallly" and "ok not really, I'll do it now" and then finally "ok, I eventually did it, that was an eye opener, but I'm still happy to place the order please."

Of course Feeder unit trusts and funds-of-REITS do have their uses or they wouldn't exist, so isn't a blanket criticism of anyone who uses one, just of people who use them without properly dispelling their misapprehensions first

chockydavid1983

Yes, it's definitely not immediately evident and not something that would have occurred to me I don't think.
I'm still relatively new to investing but thankfully a long time horizon ahead of me (hopefully!)

Birdwell

While I can get free advice, I'll keep taking it...

On my platform (Cavendish / Fidelity), most of the funds in the Direct Property are feeders accounts. Does that mean it's "stuck in the dark ages", and that (investing through a SS ISA) I miss on 20% of the income ?

One of the few accounts without feeder in the name is the Aviva Property Trust:
https://www.fidelity.co.uk/investor/research-funds/fund-supermarket/factsheet/composition.page?idtype=ISIN&fundid=GB00B7RBQK62&UserChannel=Direct

Its holdings are 13% a "liquidity" account and 87% a "property pool"; once I tracked the factsheet for the latter it lists properties (in Lichfield, Leeds, London, etc.). Is that Property Trust fund also a feeder, or is this just a funny way to distinguish between cash reserves versus actual building holdings ?

I'm also realising that on Fidelity there is almost no direct property funds outside the UK; but that's another issue I suppose.

EdGasket

If you are looking for residential rather than commercial property, then try Grainger (GRI) "Our aim is to be the leading institutional UK residential investment vehicle, delivering long-term, rental asset led, sustainable returns to our shareholders."

chockydavid1983

Birdwell wrote: »

While I can get free advice, I'll keep taking it...

On my platform (Cavendish / Fidelity), most of the funds in the Direct Property are feeders accounts. Does that mean it's "stuck in the dark ages", and that (investing through a SS ISA) I miss on 20% of the income ?

One of the few accounts without feeder in the name is the Aviva Property Trust:
https://www.fidelity.co.uk/investor/research-funds/fund-supermarket/factsheet/composition.page?idtype=ISIN&fundid=GB00B7RBQK62&UserChannel=Direct

Its holdings are 13% a "liquidity" account and 87% a "property pool"; once I tracked the factsheet for the latter it lists properties (in Lichfield, Leeds, London, etc.). Is that Property Trust fund also a feeder, or is this just a funny way to distinguish between cash reserves versus actual building holdings ?

I'm also realising that on Fidelity there is almost no direct property funds outside the UK; but that's another issue I suppose.

A few posts above, Bowlhead confirmed that the Aviva fund wasn't a feeder.
It's actually the one I'm leaning towards on iWeb given that the rest seem to be feeders or REITs.

bowlhead99

EdGasket wrote: »

If you are looking for residential rather than commercial property, then try Grainger (GRI) "Our aim is to be the leading institutional UK residential investment vehicle, delivering long-term, rental asset led, sustainable returns to our shareholders."

Yes, its share price is only down 60% in the decade since the heady heights of 2007.

To be fair, that's just looking at the share price and not the dividend yield. But still, residential property isn't really any more of a safe haven than commercial with a Brexit on the horizon. With last year's tax changes though, perhaps casual and small individual landlords will be getting out of the business and helping put yields up for the rest.

If you were looking further afield for your residential property fix, the property rental (rather than ownership) market is de rigeur in places like Germany. I have a small amount of Deutsche Wohnen which has a 10bn portfolio, pretty Berlin-centric. It's listed on the European markets rather than UK. Like a number of the others it is still down since 2007 as well, but happily I didn't have it back then!

A much smaller player with under 0.5bn of portfolio is Phoenix Spree, again 70% Berlin with other residential areas including Hanover and dribs and drabs of commercial dotted about. They IPO'd on the London exchange under two years ago (although have existed much longer than that) and have done surprisingly well for me in a short space of time, so I've reduced a little. I'm not expecting the trend to continue at anything like the same pace but will be looking to see how much detail they give in their year end results in a couple of months.