UK - The Association of Property Unit Trusts explains how despite strong performance over the short, medium and long-term (relative to equities and gilts), property still faces a difficult task of proving its worth in a portfolio as a viable contributor to risk diversification.
“Property’s relative underperformance for extended periods throughout parts of the 1980’s and early to mid 1990’s in the face of the expansion of the equities culture did not help, but with it now a consistent and superior long-term performer the position of property has not apparently improved.
“Unfortunately part of the reason for this is outdated or ill-informed notions about property which still exist in the minds of some consultants and investors alike. For many the perception still exists that property is only good as a hedge against high inflation and/or it is a lumpy difficult asset with poor liquidity and is expensive to enter and exit.”
“The performance of property over the last 10 years, in a prolonged period of low inflation, suggests that the inflation hedge argument no longer holds true. Indeed, the average return of the HSBC/APUT Pooled Property Funds Indices has achieved a real return of 8.3% against equities of 5.0% (FTSE All-Share Index) and gilts at 7.1% (FTSE 5-15 year Gilt Index) up to September 2002. “While direct ownership of property assets can on occasion give rise to some of the problems mentioned above, for investors in the indirect property market e.g. investing in open-ended property unit trusts and managed funds, property forms a viable and integral part of their balanced portfolio.
“For the investor in these pooled products, property is no longer a lumpy asset class. In some instances a minimum investment is as low as £100,000, compared to a direct property purchase, which is likely to be a £1m or more. More importantly, that initial investment gives the unit holder access to a broad range of commercial UK property (may be up to a 100 or more properties).
“Although the cost of entry and exit are broadly the same as buying the underlying properties themselves, the prudent investor should be able to match bargain some of his trades on entry and exit thereby substantially reducing trading costs.
“Secondary market trading in units is an expanding area, creating improved levels of unit liquidity, a development encouraged by the Association of Property Unit Trusts as part of its commitment to raising investor awareness of the benefits of property unit trust ownership.
“Significantly, one City institution has recently announced that it is looking to create a screen-based matching service in the near future.
“With matched bargains comes increased speed of investment and disinvestment. Most member funds of APUT offer at least three months redemption periods but match bargains can be as quick as the parties agree, often in days. Although trading in property units will rarely be faster than equities or gilts, this is a minor inconvenience given the considerable benefits property has to offer.
“Overall, indirect property ownership is a realistic and cost effective method of gaining exposure to property assets which have proven diversification benefits within a balanced portfolio.”
Further information on property unit trusts can be found at www.APUT.co.uk.
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