Property Funds
Financial Advisers Advice
A number of large insurance companies run extensive commercial property funds. Some concentrate on retail properties and others on commercial buildings such as office blocks. Investors can use these funds to obtain a small share in the benefits of ownership of good quality property portfolios.
The performance of property ...
Financial Advisers Advice
A number of large insurance companies run extensive commercial property funds. Some concentrate on retail properties and others on commercial buildings such as office blocks. Investors can use these funds to obtain a small share in the benefits of ownership of good quality property portfolios.
The performance of property funds will depend partly on increases or decreases in capital values and also on income streams from rent. Whilst prices will be affected by supply and demand, they are not usually as volatile as share-based investments. You should also bear in mind that the value of property investments is often a matter of valuer’s opinion rather than fact. As the assets within the fund are property and land these assets may be harder to sell at the time you choose, this could mean that the fund manager may not be able to act immediately on your instruction to sell. The value of units within a property fund can fall as well as rise and you could receive back less than your original investment amount.
Expert’s view: Score : 5 out of 10
Property funds also invest in property shares. You are therefore effectively purchasing shares in a company that is invested in one market and this is risky. One property fund is risk rated 10 out of 10. You’ll also find that the performance in property came more from the income than the capital value. With most property funds carrying almost their maximum in cash we might ask why. They are of the view that property is too expensive – and they invest in it. On that basis you would probably be better off considering waiting for a few years to see if property values drop. If they do, the yield (income) will increase and make the benefit of investing into property worth the risk over cash. The current yield on property is only the same as cash after charges so why take the risk. There is s feeling that most advisers are recommending property based on the last few years performance. Everything has its cycle. Be very careful
A number of large insurance companies run extensive commercial property funds. Some concentrate on retail properties and others on commercial buildings such as office blocks. Investors can use these funds to obtain a small share in the benefits of ownership of good quality property portfolios.
The performance of property funds will depend partly on increases or decreases in capital values and also on income streams from rent. Whilst prices will be affected by supply and demand, they are not usually as volatile as share-based investments. You should also bear in mind that the value of property investments is often a matter of valuer’s opinion rather than fact. As the assets within the fund are property and land these assets may be harder to sell at the time you choose, this could mean that the fund manager may not be able to act immediately on your instruction to sell. The value of units within a property fund can fall as well as rise and you could receive back less than your original investment amount.
Expert’s view: Score : 5 out of 10
Property funds also invest in property shares. You are therefore effectively purchasing shares in a company that is invested in one market and this is risky. One property fund is risk rated 10 out of 10. You’ll also find that the performance in property came more from the income than the capital value. With most property funds carrying almost their maximum in cash we might ask why. They are of the view that property is too expensive – and they invest in it. On that basis you would probably be better off considering waiting for a few years to see if property values drop. If they do, the yield (income) will increase and make the benefit of investing into property worth the risk over cash. The current yield on property is only the same as cash after charges so why take the risk. There is s feeling that most advisers are recommending property based on the last few years performance. Everything has its cycle. Be very careful
Investment Options
Financial Advisers Advice
We considered (but not limited to) Investment Bonds, Unit trusts, Open Ended Investment Companies (OEICS) and Individual Savings Accounts (ISAs).
Every contract has different terms and conditions and these will be detailed within the Key features document at our next meeting. However, you should bear in mind that ...
Financial Advisers Advice
We considered (but not limited to) Investment Bonds, Unit trusts, Open Ended Investment Companies (OEICS) and Individual Savings Accounts (ISAs).
Every contract has different terms and conditions and these will be detailed within the Key features document at our next meeting. However, you should bear in mind that these contracts usually have no fixed term.
Experts view: Score : 3 out of 10
Failed to mention investment trusts and exchange traded funds. Covered himself by saying not limited to but that’s not good enough.
We considered (but not limited to) Investment Bonds, Unit trusts, Open Ended Investment Companies (OEICS) and Individual Savings Accounts (ISAs).
Every contract has different terms and conditions and these will be detailed within the Key features document at our next meeting. However, you should bear in mind that these contracts usually have no fixed term.
Experts view: Score : 3 out of 10
Failed to mention investment trusts and exchange traded funds. Covered himself by saying not limited to but that’s not good enough.
The breaks of REIT funds within your portfolio
Financial Adviser's Advice
You should consider taking advantage of the breaks of REIT funds within your portfolio. Property is an excellent diversifier to equities and you should consider swapping some of your existing property funds into this arrangement.
Expert's view Score: 3 out of 10.
Consider it but also consider ...
Financial Adviser's Advice
You should consider taking advantage of the breaks of REIT funds within your portfolio. Property is an excellent diversifier to equities and you should consider swapping some of your existing property funds into this arrangement.
Expert's view Score: 3 out of 10.
Consider it but also consider stopping there.
Diversification is all about gaining a negative correlation. Whilst property has a good negative correlation with equities global REITs are highly correlated and provide no real diversification - a bit like investing into a Wellington boot company and an umbrella company.
Differences in performance behaviour between physical property and property security portfolios results in a significantly different potential for diversification purposes. The table below shows the correlation between various indices representing UK equities, overseas equities, gilts, direct property and global REITS over the past seven years. The correlation coefficient ('R’) has a theoretical range of 100% (perfect positive correlation) to -100% (perfect negative correlation).
An effective diversifier would have a low positive or negative correlation with other asset types.
Indeed, the cross-correlation table shows that direct UK Property has a low positive correlation of between 10% and 25% with each of the other four asset classes.
Correlation coefficient between indices over 84m to 31/12/2006*
Asset
Index
UK Equities
Overseas Equities
UK Fixed Interest
UK Property
Global REITs
UK Equities
FTSE All Share
100%
90%
-28%
22%
62%
Overseas Equities
FTSE World ex UK
90%
100%
-28%
19%
68%
UK Fixed Interest
FTSE A British Govt All Stocks
-28%
-28%
100%
10%
-10%
UK Property
IPD UK All Property Monthly
22%
19%
10%
100%
23%
Global REITs
FTSE EPRA/NAREIT Global
62%
68%
-10%
23%
100%
*Data Source: Lipper
You should consider taking advantage of the breaks of REIT funds within your portfolio. Property is an excellent diversifier to equities and you should consider swapping some of your existing property funds into this arrangement.
Expert's view Score: 3 out of 10.
Consider it but also consider stopping there.
Diversification is all about gaining a negative correlation. Whilst property has a good negative correlation with equities global REITs are highly correlated and provide no real diversification - a bit like investing into a Wellington boot company and an umbrella company.
Differences in performance behaviour between physical property and property security portfolios results in a significantly different potential for diversification purposes. The table below shows the correlation between various indices representing UK equities, overseas equities, gilts, direct property and global REITS over the past seven years. The correlation coefficient ('R’) has a theoretical range of 100% (perfect positive correlation) to -100% (perfect negative correlation).
An effective diversifier would have a low positive or negative correlation with other asset types.
Indeed, the cross-correlation table shows that direct UK Property has a low positive correlation of between 10% and 25% with each of the other four asset classes.
Correlation coefficient between indices over 84m to 31/12/2006*
Asset
Index
UK Equities
Overseas Equities
UK Fixed Interest
UK Property
Global REITs
UK Equities
FTSE All Share
100%
90%
-28%
22%
62%
Overseas Equities
FTSE World ex UK
90%
100%
-28%
19%
68%
UK Fixed Interest
FTSE A British Govt All Stocks
-28%
-28%
100%
10%
-10%
UK Property
IPD UK All Property Monthly
22%
19%
10%
100%
23%
Global REITs
FTSE EPRA/NAREIT Global
62%
68%
-10%
23%
100%
*Data Source: Lipper
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By clicking on any of the external links within this website you will leave the regulatory site of Worldwide Financial Planning Ltd. Worldwide Financial Planning Ltd are not responsible for the accuracy of the information contained within the linked sites.'
Registered office; The Old Carriage Works, Moresk Road, Truro, Cornwall, TR1 1DG. Registered in England and Wales No. 3533548. Contact info@wwfp.net or 01872 222 422
© 2007 Worldwide Financial Planning - this site is intended for UK investors only
By clicking on any of the external links within this website you will leave the regulatory site of Worldwide Financial Planning Ltd. Worldwide Financial Planning Ltd are not responsible for the accuracy of the information contained within the linked sites.'