This time last year, the investment headlines were dominated by the ‘gating’ of property funds that invest directly in commercial properties.
While the stock market had quickly brushed off the shock of a Brexit vote, the commercial property sector was not so fortunate. With far more people than usual wanting to sell on the back of a gloomy UK commercial property outlook, funds’ cash reserves soon ran out and, to avoid having to dispose of buildings quickly and too cheaply, many property funds temporarily suspended trading. It wasn’t until December that they were all back in business.
The suspension of trading was seen very negatively by some but it stopped the panic selling in its tracks, which I think is a good outcome for investors.
Property investment trusts (due to their closed-ended structure) kept trading on the London Stock Exchange after the Brexit vote. However, many saw their share prices fall, with the discount between the value of underlying assets and their share prices widening to more than 20%*.
One year on, most property funds have regained their pre-Brexit values and some have surpassed them. Property investment trusts have also seen a turnaround, with the average bricks and mortar property trust trading on a 3.5% premium as at 31 May 2017**. This means that their share prices are now more expensive than the underlying assets.
While investors were patient during the gating period, the sector has gone out of favour in terms of new money. In January and February 2017, the sector fell out of the top 10 best sellers** when it had held a consistent spot.
What does the future hold?
I still like commercial property as an investment. It adds diversification to an equity and bond fund portfolio. It is also a good source of income, which was paid even while the funds were suspended. As long as investors realise it can be illiquid at times, it has a place in most portfolios.
I’m cautious on the short-term outlook, though. The big risk remains Brexit. If (when) we come out of the single market, office spaces in London, in particular, could free up pretty fast and property values would come under pressure. If the UK economy slows down, property in other regions could cool too.
That said, some longer-term, underlying trends are still very much in place. Companies continue to expand warehouses to service online orders, making industrial property a potential growth space. Hospitality is also an area of interest. Henderson UK Property***, an open-ended fund that invests in physical property, has a nice sector spread across retail, office, industrial and alternatives, which includes leisure.
Another way to invest in property is through a fund that invests in shares in property-related companies, such as house builders and construction materials manufacturers. Over the short term, holdings will be impacted by broader stock market movements – but, longer term, they are more closely linked to the underlying property values.
One fund that stands out is F&C Real Estate Securities. It offers access to UK and major European listed property markets. It buys shares in companies it believes will do well and takes short positions against companies it thinks won’t do so well. The managers of this fund also run the TR Property Trust that invests mainly in property-related companies, but also a small amount of physical property.
I also like Premier Pan-European Property. The manager is pretty bullish, especially in Germany, where it costs more to build a property there than to buy it.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Mr McDermott’s views are his own and do not constitute financial advice.
* AIC, Property direct – UK sector
** 1 January to 28 February 2017, Chelsea Financial Services Isa client buying habits
Darius McDermott is managing director at Chelsea Financial Services and FundCalibre.
Section
Free Tag
Related stories
Source Moneywise http://ift.tt/2tJNCIT
ليست هناك تعليقات:
إرسال تعليق