Property Index fund

sixpence.

Do people have a favourite REIT tracker? I want to add one to my portfolio for diversification (main holding is a VLS). 
I like the look of this one: https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/i/ishares-global-property-secs.-eq.-index-accumulation-inclusive which I found through googling. It's low cost and global. Here is the fact sheet: https://www.fundslibrary.co.uk/FundsLibrary.DataRetrieval/Documents.aspx/?type=packet_fund_class_doc_factsheet_private&id=fd10dfa9-0711-49f6-a705-634d4297139d&user=eFQuSZH0Suuup72SQSj7FGDpP1TL1u3GRM7Ekg%2fkjrLnXiVe3DHJBEcMl58vtJ0l&r=1

Any strong opinions on this particular fund or (global?) property trackers in general?  
Cheers

barnstar2077

Buy and sell prices not being the same always puts me off.

bowlhead99

There are not many REIT trackers available and the Blackrock / iShares one seems fine if buying interests in a large number of worldwide property investment companies (half of the value being in US-based entities) is what you want to do.

As REITs may trade on the market at a price above or below the value of the underlying property interests they hold, a REIT tracker fund has the potential to be quite volatile compared to prevailing underlying values for properties - though open-ended funds that directly hold properties have their own problems with liquidity and may need to suspend subscriptions or redemptions at various points depending on market conditions, while a fund that held REITs instead would generally find liquidity for its assets even if some sales to meet investor redemptions are at firesale prices to maintain the portfolio allocation as as a whole. As you are effectively buying a few hundred companies that happen to invest in (mostly commercial) property, rather than direct property itself, you might expect the returns to be reasonably correlated with equities in the countries in which it invests and there may be a surprising lack of 'defensiveness' if you had been hoping it would display a lack of correlation with equities and bonds.

The fund tracks the index at reasonable cost, but the tracking error is not as good as you would get with a simple equities tracker, and the headline cost is really just the ongoing charges of running the fund itself, and won't include the day to day operating and property management costs, borrowing costs etc within the individual REITs. Depending how much money you are investing and what exposure you want, you might prefer to just invest directly in the REITs that interest you, to the extent that you are able, but the OCF of 0.17-0.18% is not bad as it is difficult to assemble for yourself a diversified set of property companies including Sweden, Singapore, Australia, Japan etc.

The links you gave us were to the A class of shares for this fund which has a headline OCF of over 0.5% - while part of this would generally be rebated by a mainstream investment platfom it would make more sense to buy the cheaper clean priced share class D or H at 0.17 or 0.18% OCF.

sixpence.

bowlhead99 said:

There are not many REIT trackers available and the Blackrock / iShares one seems fine if buying interests in a large number of worldwide property investment companies (half of the value being in US-based entities) is what you want to do.

As REITs may trade on the market at a price above or below the value of the underlying property interests they hold, a REIT tracker fund has the potential to be quite volatile compared to prevailing underlying values for properties - though open-ended funds that directly hold properties have their own problems with liquidity and may need to suspend subscriptions or redemptions at various points depending on market conditions, while a fund that held REITs instead would generally find liquidity for its assets even if some sales to meet investor redemptions are at firesale prices to maintain the portfolio allocation as as a whole. As you are effectively buying a few hundred companies that happen to invest in (mostly commercial) property, rather than direct property itself, you might expect the returns to be reasonably correlated with equities in the countries in which it invests and there may be a surprising lack of 'defensiveness' if you had been hoping it would display a lack of correlation with equities and bonds.

The fund tracks the index at reasonable cost, but the tracking error is not as good as you would get with a simple equities tracker, and the headline cost is really just the ongoing charges of running the fund itself, and won't include the day to day operating and property management costs, borrowing costs etc within the individual REITs. Depending how much money you are investing and what exposure you want, you might prefer to just invest directly in the REITs that interest you, to the extent that you are able, but the OCF of 0.17-0.18% is not bad as it is difficult to assemble for yourself a diversified set of property companies including Sweden, Singapore, Australia, Japan etc.

The links you gave us were to the A class of shares for this fund which has a headline OCF of over 0.5% - while part of this would generally be rebated by a mainstream investment platfom it would make more sense to buy the cheaper clean priced share class D or H at 0.17 or 0.18% OCF.

This is such a helpful post. Thank you. I don't fully understand why this fund (https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/i/ishares-glbl-propty-secs.-eq.-index-class-h-accumulation) is cheaper than the other one? I did figure this out once upon a time ago, but I can't remember. 

Also not sure what you mean @barnstar2077 about the prices being different?

barnstar2077

sixpence. said:

bowlhead99 said:

There are not many REIT trackers available and the Blackrock / iShares one seems fine if buying interests in a large number of worldwide property investment companies (half of the value being in US-based entities) is what you want to do.

As REITs may trade on the market at a price above or below the value of the underlying property interests they hold, a REIT tracker fund has the potential to be quite volatile compared to prevailing underlying values for properties - though open-ended funds that directly hold properties have their own problems with liquidity and may need to suspend subscriptions or redemptions at various points depending on market conditions, while a fund that held REITs instead would generally find liquidity for its assets even if some sales to meet investor redemptions are at firesale prices to maintain the portfolio allocation as as a whole. As you are effectively buying a few hundred companies that happen to invest in (mostly commercial) property, rather than direct property itself, you might expect the returns to be reasonably correlated with equities in the countries in which it invests and there may be a surprising lack of 'defensiveness' if you had been hoping it would display a lack of correlation with equities and bonds.

The fund tracks the index at reasonable cost, but the tracking error is not as good as you would get with a simple equities tracker, and the headline cost is really just the ongoing charges of running the fund itself, and won't include the day to day operating and property management costs, borrowing costs etc within the individual REITs. Depending how much money you are investing and what exposure you want, you might prefer to just invest directly in the REITs that interest you, to the extent that you are able, but the OCF of 0.17-0.18% is not bad as it is difficult to assemble for yourself a diversified set of property companies including Sweden, Singapore, Australia, Japan etc.

The links you gave us were to the A class of shares for this fund which has a headline OCF of over 0.5% - while part of this would generally be rebated by a mainstream investment platfom it would make more sense to buy the cheaper clean priced share class D or H at 0.17 or 0.18% OCF.

This is such a helpful post. Thank you. I don't fully understand why this fund (https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/i/ishares-glbl-propty-secs.-eq.-index-class-h-accumulation) is cheaper than the other one? I did figure this out once upon a time ago, but I can't remember. 

Also not sure what you mean @barnstar2077 about the prices being different?

The buy price is 5% higher than the sell price on the ishares global property fund you mentioned.

bowlhead99

sixpence. said:
This is such a helpful post. Thank you. I don't fully understand why this fund (https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/i/ishares-glbl-propty-secs.-eq.-index-class-h-accumulation) is cheaper than the other one? I did figure this out once upon a time ago, but I can't remember. 

There are often multiple classes of the same fund to accommodate different types of investors. Generally you should buy the cheapest one (i.e. lowest annual charge) available to you.

Class A is the old 'retail' investor class created for small investors back in the day. A decade ago, funds had higher management fees for retail investors like you and me (as distinct from big institutional investors) which allowed the investment manager taking the high management fee to pay a commission to the IFA who was looking after the investor and to the investment platform that provided the account, so that the investors would not need to pay for those services out of their own pocket.  Following the FCA's 'retail distribution review' (a review of how ownership interests of a fund got distributed out to the end investors like you and me) and 'platform review' a year later, it was agreed that everything would be better and more transparent if the customers paid their advisers and their platforms directly for the services they were getting, and the funds paid a lower 'clean' management fee to the fund manager without a built-in kickback. 

So, if HL is your platform as an example, at HL you can pay 0.45% for their platform services (paid periodically to HL from your account) and if you are using the clean-priced (class H) fund that they offer, the fund in which you are invested will pay a nice low 0.18% for the investment management fee and other ongoing charges to the fund manager. So your total ongoing cost exposure is 0.63% (ignoring the operating costs of the underlying REITs in which the fund will invest).

The old 'inclusive' version of the fund (class A, which is the one you found first) is still available. However, following the FCA platform shake-up mentioned earlier, if you buy an inclusive fund class such as that one, the investment platform need to credit you with whatever kickback they receive from the fund manager. The kickbacks are not outlawed, they just need to be transparent so that you benefit from them and can see the 0.45% that you are paying to the platform as a separate line item on your account).

With class A, the fund manager charges you a higher running cost of ~0.57% but gives a 0.3% kickback to the platform which HL pay to you as a 'loyalty bonus'. This reduces the fund net running costs to you, to 0.27%, as shown on the first HL link you gave, even though the second link of your first post (the factsheet on fundslibrary site) said the OCF of the A class was approx 0.56%.

So if you picked that option of Class A you would be paying a net ~0.27% of ongoing fund cost (net of 'loyalty bonus') and paying your 0.45% to HL for the platform services, and overall it would be costing you 0.72%. That is almost a tenth of a percent more than the 0.63% I mentioned earlier that you'd get if you had just bought the cleanest cheapest class H available though HL and not bothered messing around with the rebate. So, you are better off just buying the clean priced fund rather than the inclusive, bundled one which has a higher management fee and a rebate system.

The 'class H' at 0.18% is the cheapest way to buy it through HL, and the negotiated rate on that deal with HL at 0.18% is cheaper than some institutional investors might pay when going direct to iShares with class L (0.21%), but you do have to pay HL's expensive platform fee to get it.  From a cost perspective you would be better off with a different fund platform really, for example at AJ Bell Youinvest or Halifax or IWeb you could get the Class D at only 0.17%, and their platform fees are much lower than HL's 0.45% (e.g. Youinvest is 0.25% plus £1.50 a transaction, IWeb is £5 a transaction after initial account setup fee with no percentage-based charge at all).

sixpence. said:
Also not sure what you mean @barnstar2077 about the prices being different?

barnstar2077 said:
The buy price is 5% higher than the sell price on the ishares global property fund you mentioned.

He's referring to the fact that the official price for selling shown on your first link is 5% lower than the buy price that it says you pay, implying that you will make a 5% loss if you buy and then swiftly sell.

Some funds do legitimately have a buy price that's a bit higher than the sell price to discourage excessive buying and selling which can cost the fund money as it deploys new investor monies into buying new underlying assets and then has to sell them again the next day when the investor changes his mind and wants out. 

However in a majority of funds set up for retail investors it's just a theoretical headline fee that the manager reserves the right to charge and never actually does because in this day and age people don't need to pay big percentage fees for access to investment funds. In this case it is a bit misleading because although the fund manager has an 'entry fee' of 5% for the retail fund class A (and HL's class H), all the mainstream platforms offer a discount on such fees (if there are any) down to nil.  So you can see on the factsheet at HL for both classes A and H, it says:

  Initial charge: 5.00%

  Initial saving from HL: 5.00%

  HL dealing charge: Free

  Net initial charge: 0.00%

So, although it looks like buy price will be 5% higher than sell price, actually it isn't and you just pay the net amount after the 'saving', which would be 184.9p for Class A (which is 5% lower than the headline 194.6p buy price for Class A, but you don't pay that buy price, you only pay the 184.9p, so there's no problem.

If you had gone somewhere else to buy the class H,like Fidelity, they wouldn't bother to tell you there was a theoretical 5% charge that was discounted to nothing, they would just simplify it and say 'fund provider buy charge: 0.0' and give you one price.  And if you went to AJ Bell or IWeb to get their class D, there isn't even a theoretical 5% at all, because that newer class has never had such a charge, so there is nothing that needs to be discounted.

Moe_The_Bartender

Not exactly a tracker but this is worth a look:

https://www.graviscapital.com/funds/gravis-uk-listed-property/about

It's well focused and one of the attractions is that it excludes retail.

ivormonee

If you're going to invest in property for diversification then really you ought to be looking at direct property investment rather than an investment the underlying holdings of which are commercially run property companies (which is the category that an ETF would fall into, as well as many of the open ended investments and some of the close ended investments too); the latter are a bunch of shares which will have a stronger correlation to equity movements which will not therefore provide an uncorrelated asset for your portfolio.

You'd then be left with a choice of going down either the open ended route (unit trusts, OEICS), with its problems of liquidity, or the closed ended route (investment trusts, some which will have REIT status and others which won't) with the prospect of increasingly substantial and long standing discounts to net asset value, which in turn is also becoming increasingly difficult to determine but has been diminishing all the same.

If you were to take a very long term view and presume that, at some point in the future when the uncertainties of leaving the EU without a trade deal, Covid 19, Covid 20, other unforeseen issues etc, have subsided and, at best been replaced by optimism based on something positive (an improving economy, a vaccine for coronavirus, people going to shops and offices again etc.), the discounts will narrow and perhaps even revert to premiums, then the closed ended route maybe a better one to follow, despite the inherent very bumpy volatility along the way.

There isn't, currently anyway, any way of tracking direct property, so the direct property investment route, whether through an open ended or close ended investment vehicle, would mean that you are investing into an actively managed fund/ trust. Although there are indexes that track movements in real estate it isn't possible to set up an ETF for this as it would still require investment in the underlying properties which logistically would be very difficult, virtually impossible in fact, to achieve.

Seldonista

I just checked on trustnet and the iShares fund is very correlated with IA Global so not that good to diversify, I'm no expert though.
I think I read on here HSBC Global Strategy include property so maybe look at that.

Linton

Seldonista said:

I just checked on trustnet and the iShares fund is very correlated with IA Global so not that good to diversify, I'm no expert though.
I think I read on here HSBC Global Strategy include property so maybe look at that.

To agree with Ivormonee and put things in a different way....
Traditionally one used Property for diversification because it had bond-like properties.  You owned an asset for the long term which provided a steady income from the rents.  This income was pretty independent of share prices and vatiations in the capital value were irrelevent because you wern't selling.  In any case without an actual sale the capital value could only be roughly guessed.
Holding a fund that invests in property companies is very different as its value is based on the share values of its holdings.  So you dont get anything like the same level diversification, share values being linked by the overall state of the markets.  Since property is such a small % of the overall market I wouldnt worry about it, unless you intend to go for direct property and accept the limitations.

Thrugelmir

Alternatively here's an investment trust that's been around for many years.
TR Property Investment Trust