Industry experts say that although investors should only have a relatively small exposure to the out-of-favour sector, there are certainly benefits to holding property-related assets. Tim Cockerill (pictured), head of collectives research at Rowan Dartington, says he would always choose a fund that invests in physical property rather than individual shares.
"The latter is a sector play," he explained. "Your ordinary fund manager – one who invests in equities – could invest in them if they saw value, which I don’t think there is at the moment."
AWD Chase de Vere's Patrick Connolly shares Cockerill's preference for bricks and mortar funds over those that focus on property equities.
With this in mind, FE Trustnet takes a look at five straightforward property funds to get investors started.
L&G UK Property Trust
"We have L&G UK Property Trust on our call-list because it invests in bricks and mortar," Cockerill said.
"It is a high-quality bricks and mortar fund which is managed very well by a good team. It also has a reasonable yield – especially if you invest in the institutional share class – which is 3.1 per cent."
"We use it in our model portfolios because it acts very differently to equity funds and is a good diversifier."
"We normally have a weighting of around 5 per cent, so therefore we are hoping for some growth in capital value but it is useful as a source of income."
| Name | L&G UK Property Trust |
|---|---|
| Fund Size | £730.2m |
| Min. Investment | £500 |
| TER | 1.43% |
| Yield | 2.6% |
| Manager | Michael Barrie and Matt Jarvis |
| FE Crown Rating | 2 Crowns |
Source: FE Analytics
L&G UK Property has been managed by Michael Barrie since its launch in February 2006. He was joined by Matt Jarvis as co-manager in January 2010.
The £730m fund has tended to underperform against the IMA Property sector – which is also its benchmark – in more recent times.
However, since the unit trust’s launch it has returned 6.11 per cent while the sector has returned 1.59 per cent.
Performance of fund vs sector since Feb 2006
Source: FE Analytics
L&G UK Property Trust currently owns 64 properties, with those based in London making up 21.51 per cent of the fund.
Its highest weighting is to cash and cash-related assets, which account for 25.2 per cent of the fund.
The retail-friendly share class currently has a much lower yield than the institutional class, at 2.6 per cent.
Henderson UK Property
Patrick Connolly (pictured), head of communications at AWD Chase de Vere, says that every investor should have some exposure to property when constructing their portfolio.
"The funds we particularly like are Henderson UK Property, Ignis UK Property and the M&G Property Portfolio.""We like them because they invest in listed property instead of property shares. Secondly, they all have well-established management teams that have been in place through all sorts of situations. They have also made consistent returns; well, as much as you can in the property sector."
"Thirdly, we like them because all three portfolios are defensively positioned and the majority of their holdings are buildings in London and the south east."
"This means that as it is a particularly tough time for the property market, these funds can still protect capital."
| Name | Henderson UK Property |
|---|---|
| Fund Size | £808.6m |
| Min. Investment | £1,000 |
| TER | 1.71% |
| Yield | 4.5% |
| Manager | Marcus Langlands Pearse & Ainslie McLennan |
| FE Crown Rating | 5 Crowns |
Source: FE Analytics
The five crown-rated Henderson UK Property fund was launched in 1999 and has been run by its current management team of Marcus Langlands Pearse and Ainslie McLennan since the spring of 2009.
Since Langlands Pearse joined in April 2009, it has returned 32.16 per cent, compared with 55.28 per cent from the sector.
Performance of fund vs sector since Apr 2009
Source: FE Analytics
Ignis UK Property
The £942.1m Ignis Property fund was launched in December 2004 and has been managed by George Shaw since August 2007.
| Name | Ignis Property |
|---|---|
| Fund Size | £942.1m |
| Min. Investment | £500 |
| TER | 1.52% |
| Yield | 3.4% |
| Manager | George Shaw |
| FE Crown Rating | 2 Crowns |
Source: FE Analytics
The fund has tended to fall short of the IMA Property sector in recent times, posting fourth- and third-quartile performances over the last one and three years, respectively.
However, its returns of 5.82 per cent over the last five years put it in the second quartile of its sector and make it the best-performing bricks and mortar fund over the period.
Performance of fund vs sector over 5yrs
Source: FE Analytics
The fund currently holds 56 properties, 63.3 per cent of which are in London and the south east. It is yielding 3.4 per cent.
M&G Property Portfolio
Connolly also likes the £2.1bn M&G Property Portfolio, which is the largest of the physical property funds on the list.
| Name | M&G Property Portfolio |
|---|---|
| Fund Size | £2.1bn |
| Min. Investment | £1,000 |
| TER | 1.66% |
| Yield | 2.8% |
| Manager | Fiona Rowley |
| FE Crown Rating | 2 Crown |
Source: FE Analytics
The fund has been run by Fiona Rowley since its launch in June 2009. Over that time, it has underperformed against its peers, but has tended to protect capital more effectively than its equity-based rivals.
It has returned 21.05 per cent since its launch in June 2009 while the IMA Property sector is up 47.28 per cent.
Performance of fund vs sector since June 2009
Source: FE Analytics
The fund’s largest geographical weighting is in south-east England, accounting for 44.9 per cent of its total assets. A further 15.1 per cent of the portfolio is in the midlands.
M&G Property’s largest individual holding is Castle Vale Retail Park in Birmingham.
First State Global Property Securities
Although Connolly and Cockerill both prefer property funds focused on bricks and mortar, there are a number of strong equity funds operating in this area.
According to FE Analytics, First State Global Property Securities is the standout performer in that respect.
| Name | First State Global Property Securities |
|---|---|
| Fund Size | £168m |
| Min. Investment | £1,000 |
| TER | 1.64 |
| Yield | 2.25 |
| Manager | Stephen Hayes |
| FE Crown Rating | 4 Crowns |
Source: FE Analytics
The fund has been the best performer in its sector over three- and five-year periods. Over the shorter period, it has returned 62.08 per cent while the IMA Property sector has made 27.21 per cent.
Performance of fund vs sector over 3yrs
Source: FE Analytics
The fund has 68 holdings in total and its largest regional weighting is to the US, accounting for 48.1 per cent of AUM.