Property as a portfolio diversifier?

Aged

I was interested in a comment by Dunston in another thread re using property (and money market) to bring diversification to a portfolio. I remember that the PAIF went out of vogue a few years back, and the advice then was to invest in REITs instead. What is the best way these days for individual investors to invest in property?

Hoenir

There's plenty of options available through REIT's.  They provide a highly liquid option of accessing an asset which is highly illiquid. The problems in the OEIC sector, when funds are gated,  over the years are well documented. 

Aged

I seem to remember shunning REITs because they were risky compared with PAIFs, behaving more like equities. 

gm0

I have been put off multi-asset funds which contain illiquid distressable assets and which may then (correctly) be gated - so separation off into a REIT or another separate vehicle definitely seems wise.  And if it gates the 5% holding in the standalone fund until valuation shenaigans are resolved then - whatever.  Other stuff can still move.

I also dislike the intrinsic "trust us" aspect where inflows = more money for AUM for the runners.  And the "valuation" and mark to market aspect is subjective and "promises" objectivity.   In the presence of strong incentives to not spook the horses.  If you recall the rating and labelling of debt slicing credit risk pre GFC.  The independence of valuation or of supposed review of valuation cannot be blindly trusted to be independent of groupthink and worse.

The 2nd reason has led me away from using them entirely.  I have domestic property (live in it).  I don't want commercial property equity interest which might pull a HomeREIT or WeWork on me. 

Fails my personal transparent enough and I don't understand it enough test.  Others will reach a different conclusion.  Some will do well. Some will be toast.

Commodities would be ahead on my list but I have a set of issues to overcome about them as well.

ColdIron

They are a diversifier and have some use in an income portfolio, but unless they are a small part of a multi-asset fund I would avoid them. They can be more volatile than people imagine and lose a lot of money (BCPT) or nearly all of it (Glanmore Property Fund)

Aged

gm0 said:

Commodities would be ahead on my list but I have a set of issues to overcome about them as well.

Feel free to expand on this?

Hoenir

Not a recommendation but to highlight the type of options out there. . There are vehicles such as TR PROPERTY INVESTMENT TRUST PLC (TRY). Which provides broad diverstification across a range of other listed property company shares. With well respected management expertise over many years. 

Albermarle

Hoenir said:

Not a recommendation but to highlight the type of options out there. . There are vehicles such as TR PROPERTY INVESTMENT TRUST PLC (TRY). Which provides broad diverstification across a range of other listed property company shares. With well respected management expertise over many years. 

I have a long term holding in this IT. I think it is well managed, but it has been pretty volatile. It dropped over 40% in the first 6 months of 2022, and has only recovered a small part of that even today.

The share price is pretty much where it was 10 years ago, although it does have a nearly 5% yield

gm0

I'll try but my lack of sufficient confident understanding of it is the main obstacle to me using it.

Commodities markets have a different set of drivers and trading behaviours and cycles to equities (generally) and to high weight US and large cap tech equities in particular.  This is arguably a valuable feature as a diversifier.  But they also have highly volatile supply/demand/capacity variations of their own.  The equity markets shrugged off Ukraine. European energy markets - did not.

I do not understand it - or the specifics of the trading of them and how the short/medium cycles could help or hurt me sufficiently.  So point of entry to redeploy capital in deaccumulation is difficult to discern.  Saving up a little over the very long term would perhaps have been less traumatic - as it is with other speculative investments.

I also spent some time long ago in employment in an infrastructure supplier to a well known oil/gas/energy trading company when it was briefly in europe. Before imploding in a cloud of fraud and overly aggressive accounting. No prize for guessing who. Cannot unsee self-serving forward curve manipulation by a dominant tradebook in a niche market.  This came up in questions I had about how some derivatives and special purpose vehicle holdings made / lost money. Where was the magic skill.  Asymmetric information as power to push the market a little, and create the accounting story you need or prefer.  Manipulation of forward curves. 

The people holding their stock, in pensions, as a proxy for sector and because - my employer is a master of the universe - took an unholy capital loss.  No job. No 401k.  Went to zero.  When the walls came atumbling down on the cultural delusion and accountancy ponzi

Anything with a forward curve and only a few or asymmetric size players and scope for gaming - makes me distinctly nervous as the small mug punter right at the ede of the map.   The dumb money. Whose face in trader parlance is ripe for ripping off. Not that they notice you. As a unitised small scale holder of proxy mining/extractive/processing stocks, or directly as commodities and futures in a "commodities" themed fund - you are but a cork on large waves. Who needs to consider both weather and the possibility of wave machines.

See also cornering the Silver market in London and other historical examples of malpractice. 

Mining and Metals and Oil/Gas is a fairly rough place.  Hasn't always kept up with modern times on behavioural norms.  And regards laws as more "guidelines".   Arrr.

wmb194

The filters aren't very good but if you go through each of the 'Property - X' filters you can find all of the REITs listed in London on the AIC's website, link below. The IT Hoenir mentioned is under 'Property Securities' but it owns shares in many of the other Reits plus it also directly owns properties (LSE:TRY).

https://www.theaic.co.uk/aic/find-compare-investment-companies?sec=PUR&sortid=Name&desc=false

Hoenir

Albermarle said:

Hoenir said:

Not a recommendation but to highlight the type of options out there. . There are vehicles such as TR PROPERTY INVESTMENT TRUST PLC (TRY). Which provides broad diverstification across a range of other listed property company shares. With well respected management expertise over many years. 

I have a long term holding in this IT. I think it is well managed, but it has been pretty volatile. It dropped over 40% in the first 6 months of 2022, and has only recovered a small part of that even today.

The share price is pretty much where it was 10 years ago, although it does have a nearly 5% yield

The past decade or so is an anomaly for well documented reasons.  The future is going to be very different. With less concentration of where to be invested.