Which UK Property PAIF

chockydavid1983

Hi guys,

I'm looking to add physical property to my portfolio at some point. I've come to the conclusion that a PAIF is the best way to do this for tax efficiency over a feeder fund and over property shares as they will be more closely correlated with other equities.

I'm not sure how to work out whether a fund is open ended or closed but I'm guessing they're all open ended. What should I be looking out for? I can see and have read that the L&G one has a fair amount in cash, which may drag on performance but also handle market slumps better. The M&G one has a much higher OCF but I'm not sure why.

L&G:
http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/l/legal-and-general-uk-property-paif-class-i-accumulation

Henderson:
http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/j/janus-henderson-uk-property-paif-i-accumulation

Aviva:
http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/a/aviva-inv-uk-property-class-1-paif-income-inclusive

M&G:
http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/m/m-and-g-property-portfolio-paif-class-i-accumulation

F&C:
http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/f/f-and-c-uk-property-paif-class-2-income

Thanks,
Chris.

chrisgg

To answer your first question, all the funds you've listed are open ended. They will all be listed as OEIC or Unit Trusts, whereas closed ended will be listed under a market index or referred to as an investment trust or a REIT.

When it comes to investing in direct property, you need to consider what your priority is. If it is diversification, downside protection, then consider something like the L&G fund, which has low correlation to equity markets, and importantly, very low volatility.

If you're looking for extra diversification, less correlation some downside protection and income, and you aren't concerned about volatility, I'd go for something closed ended. An option here would be something like Standard Life Property Income.

By way of comparison, a quick google search tells me L&G fund has an FE risk score of 50 and has provided a total return of circa 50% over the last 5 years, whereas the SL trust has a risk of 97 with a TR of 112% over the same period.

Lastly, well done for avoiding trackers on this one, as I've come across many people who've picked up various property trackers for downside protection without realising they've bought into large cap property firms/a concentrated portfolio of REITs!

chockydavid1983

Thanks for explaining chrisgg. I probably will be leaning towards the open ended funds in that case or maybe a bit of both.

System

I would not invest in an open-ended property fund as they are not very liquid as was demonstrated after Brexit:
https://uk.reuters.com/article/uk-britain-eu-property/number-of-uk-property-funds-suspended-since-brexit-vote-doubles-idUKKCN0ZL13H

chrisgg

I believe L&G (and Kames if I recall correctly) were two that stayed open just after the brexit vote.

In reality, it would have been foolish to sell at that point anyway, given the drop in value that property funds suffered. Liquidity shouldn't be an issue with these sorts of funds provided you have a cash buffer.

chockydavid1983

Thanks guys, yeah I read about L&G having stayed open but didn't realise there were others (will look into that). I have a decent cash buffer and am investing for the long term so liquidity shouldn't be an issue.

Tcquins

F&C also stayed open.

The reasons for the suspension in the majority of these funds, was the bulk multi asset funds sell off on the days after Brexit.

Not a focused sell off of property per se that caused the suspension. Liquidity may be a perceived risk, but only the dumb money sells off at times of extreme market stress. A patient investor shouldn’t see this an issue. However, funds are building up a much larger cash pile as a result of the Brexit aftermath to avoid suspension happening again.

Also bear mind the quite hefty spreads on the L&G fund (about 5.2%) so don’t go chopping in and out of it. Although the long performance is pretty solid.

sorcerer

chrisgg wrote: »

I believe L&G (and Kames if I recall correctly) were two that stayed open just after the brexit vote.

In reality, it would have been foolish to sell at that point anyway, given the drop in value that property funds suffered. Liquidity shouldn't be an issue with these sorts of funds provided you have a cash buffer.

Yes you are correct Kames Property was still open, but they did change the spread to make it more expensive to sell, to try to reduce redemptions. After all of the that, I moved over to investments trusts for property, I didn't like the idea of closing a fund so I couldn't get my money out.

On the plus side, they tend to be less volatile than investment trusts, since trusts are bought and sold on the market, at least from a price point of view.

chockydavid1983

Is the spread the difference between the buy & sell price?
How would I go about finding that out on this and other funds?
I'm not too concerned here as I'll be buying and holding.

sorcerer

chockydavid1983 wrote: »

Is the spread the difference between the buy & sell price?
How would I go about finding that out on this and other funds?
I'm not too concerned here as I'll be buying and holding.

Yes that's correct on a lot of OEICs the buy and sell price will be the same. But in the case of Kames at the time, they put a 10% difference between sell and buy, which meant you would lose 10% of the value when you sold them. They did this to try to prevent redemptions.

ivormonee

Here's an overall picture:

OEICs - no bid/ offer spread, no trading cost, platform fee, poor liquidity in extreme market conditions, good diversification, low relative volatility

Unit Trusts - bid/ offer spread, no trading cost, platform fee, poor liquidity in extreme market conditions, good diversification, low relative volatility

Investment Trust - bid/ offer spread, trading cost, no platform fee, excellent liquidity in extreme market conditions, good diversification, high relative volatility

ETF - bid/ offer spread, trading cost, no platform fee, good liquidity in extreme market conditions, poor diversification, high relative volatility

For diversification (low correlation) you need direct physical holdings (therefore a tracker fund will be no good). For ability to buy and sell in extreme conditions you need something closed ended. Anything exchange traded will be much more volatile. There's no clear winner; they all have different characteristics. You pick based on personal preferences.