Archived article: This article was correct at the time of publishing. Tax, investments and pension rules can change over time so the information below may not be current.

Bricks and mortar – ideas from the property sector

With UK commercial property values rising every month since April 2013 and many property professionals forecasting a strong return for each of the next three years, funds from the property sector are gaining in popularity, particularly among investors in search of an income.

Lee Dooley Lee Dooley
02 March 2015

There are different types of property funds: those that invest in the shares of property firms listed on the stock market (known as REITs) and those that invest in actual bricks and mortar. We currently prefer those investing in bricks and mortar because they are less correlated to (perform in different ways to) equity funds and therefore provide important diversification for investors, which can help reduce risk.

In this article we highlight two funds that our property sector specialist and head of research Simon Moore rates highly.

Henderson UK property – income from high-quality commercial property

Henderson UK Property is an excellent example of a fund that invests predominantly in physical property. It is run by the highly experienced duo of Marcus Langlands Pearse and Ainslie McLennan and aims to generate an attractive level of income for investors together with the potential for capital growth by investing in a large portfolio of modern, high-quality commercial properties. These have low voids, long leases and an above-average allocation to high-quality tenants.

The portfolio currently consists of around 80 properties, the majority of which are in the South East and include the likes of shopping centres and office buildings. This means those choosing to invest ISA or pension money in the fund will end up owning a chunk of everything from 440 The Strand (home to prestigious bank Coutts) to a Travelodge in Kings Cross.

According to Simon: “We believe the balanced portfolio of property, experienced fund management team and disciplined, focused approach make this a good option for investors. It does hold 15-20% in cash, which may affect performance but offers Langlands Pearse and McLennan flexibility to invest quickly and also meet redemption requests.”

Property in secondary locations – Kames Property Income

Kames Property Income is a small but rapidly growing fund launched in March 2014. Run by experienced fund manager David Wise, it invests predominantly in physical commercial property outside London and the South East but also holds some prime properties as well as listed property securities and cash. While not guaranteed, it targets a high dividend yield and pays this monthly.

“With prime assets in central London already highly priced, funds are beginning to flow into regional areas. Wise targets higher-yielding, smaller lot sizes in secondary locations. As a new fund, it also has no legacy assets, which can act as a drag on performance,” Simon mentions.

This fund is structured as a Property Authorised Investment Fund (PAIF) and a ‘feeder fund’, each with its own share class. The feeder fund is available through us.

 

Find out more about our investment ideas by downloading Bestinvestor.

Sectors

The value of investments, and the income derived, can go down as well as up, and you can get back less than you originally invested. The property market can be illiquid; consequently, there can be times when investors will be unable to sell their holdings. Property valuations are subjective and a matter of judgement. This is not advice to invest.