However, dividend-paying property funds are a good option for diversification in this area – particularly given that some analysts fear dividend growth will come under pressure this year in the equity market.
Here are five property funds that are yielding more than the FTSE's 3.78 per cent at the time of writing:
Threadneedle UK Property – 4.5%
This £374m fund prioritises income by investing directly in bricks and mortar. Its largest holding is currently a block of shops in Harpenden.
It is headed up by Don Jordison and Chris Morrogh and is currently yielding 4.5 per cent – well above that of the FTSE 100.
The fund is still down 8.68 per cent since its launch in February 2007, as a result of the hit it took in the financial crisis. It has had a much better time in the last three years and is up 3.15 per cent, according to FE Analytics.
Threadneedle UK Property requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.64 per cent.
Freehold Income Trust – 5.32%
This £156m fund targets a secure and stable return primarily through acquiring freehold ground rents that offer an attractive income stream and capital growth prospects.
It currently has a target yield of 4.25 per cent after charges, but the yield is higher than this at present, at 5.32 per cent.
It has an unbroken track record of positive returns for almost two decades and has consistently outperformed cash, gilts and inflation over each calendar year.
According to FE data, it has returned 88.42 per cent over the last decade, with an annualised volatility of just 0.99 per cent. This makes it more stable than the average UK Gilt fund.
Performance of fund over 10-yrs
Source: FE Analytics
The fund is managed by Nigel Ashfield. It requires a minimum investment of £5,000 and has a TER of 1.9 per cent.
SWIP European Real Estate – 4.4%
SWIP European Real Estate is different to the other funds featured here, in that it invests in property companies rather than bricks and mortar.
Funds of this type have higher potential for capital growth, but tend to be far more volatile than their physical property rivals.
SWIP European Real Estate has been managed by Vicky Watson since March 2008.
It invests in both continental Europe and the UK, currently split 60/40.
Performance of fund vs sector and over 5yrs
Source: FE Analytics
The fund has marginally outperformed the IMA Property sector average over five years, with returns of 6.91 per cent. However, it has been a lot more volatile.
It has also outperformed over three years.
The £58m SWIP European Real Estate portfolio requires a minimum investment of £1,000 and has a TER of 1.64 per cent.
SJP Property – 4.2%
Chris Bartram’s £266m trust is another that invests predominantly for income, by holding a portfolio of physical property.
Bartram invests in commercial, industrial and retail property across the UK. Only one of the manager’s top-10 holdings is in London. Close to 30 per cent of the portfolio is invested in cash, for liquidity reasons.
The fund is currently yielding 4.2 per cent. On a total return basis, it is up 4.64 per cent over three years – around 22 percentage points less than its IMA Property benchmark. Bartram has also failed to keep up with inflation over the period.
SJP Property requires a minimum investment of £1,500 and has a TER of 2.07 per cent.
Medicx – 7.12%
This is by far the most specialist of the five portfolios – not only because it is an investment trust, but because it invests solely in primary care properties that are then let out to GPs and doctor’s surgeries.
The Medicx IT has a target yield of 6 per cent, but is currently paying out 7.12 per cent, according to FE Analytics.
Like most property trusts, it had a terrible 2008 but has recovered strongly since then.
It is up 17.77 per cent since its launch in November 2006, underperforming its MSCI ACWI/Real Estate benchmark, albeit with less volatility.
Performance of trust vs index since launch
Source: FE Analytics
The trust is director-managed and has £440m in assets under management (AUM).
Medicx is currently trading on a premium of 18.3 per cent, as a result of its high dividend cover. It has an ongoing charges figure of 2.7 per cent, exclusive of performance fee.
Two funds – CF Stewart Ivory Invest Market and Architas MA Active Reserve – both hold the trust in their top-10.