AVIVA FUNDS INTERNATIONAL
PRIVILEGE PORTFOLIO EUROPEAN PROPERTY FUND
Aim: Growth by investing in stocks of European property management companies
Minimum investment: Lump sum Euro 3,000
Place of registration: Luxemburg
Investment split: 100% in stocks of European property management companies
Charges: Initial up to 5%, annual 1.5%
Commission: Subject to negotiation
Tel: 00352 40 28 20 240
The panel: Julian Melling, Investment consultant, Clearwater Financial Services, Anton Robinson, Director, City Asset Management, Keith Lewis, Proprietor, Hartley Greatbatch
Suitability to market 7.0
Investment strategy 7.0
Past performance 7.3
Company's reputation 7.3
Product literature 7.0
Aviva Funds International has introduced the Privilege portfolio European property fund, a Luxemburg-based Sicav invests in the stocks of property management companies rather than investing directly in bricks and mortar.
Looking at how the fund fits into the market Melling says: “It is quite specialised, relative to other property funds available. It opens up the asset class to European investments. There are limited alternatives to this fund, such as the Morgan Stanley Dean Witter (MSDW) European property fund.” Robinson says: “Commercial property is popular now except for funds with a high exposure to City of London offices. Very few clients have any investment in European property companies.”
Lewis says: “In today's volatile market, this lower-risk fund will appeal to those looking for suitable funds to gain some advantage. It is part of a new breed of property funds, both onshore and offshore, with projected low volatility, increasing low-risk capital growth and it could well suit today's market.” He also thinks it could suit investors who are trying to avoid inheritance tax and are looking to create a structured portfolio.
Identifying the type of client the fund could suit Robinson says: “One who is seeking a stable income with minor capital fluctuations. Hopefully, there will be some capital growth over the long term to mitigate future inflation.” Lewis says: “Clients who want to build a portfolio of investments, maybe those asking to avoid inheritance tax. It has a capital value appeal to low-risk investors or those seeking to avoid equity markets in a volatile market. These investors will be mainly retired or seeking safer ground.”
Melling says: “It could be utilised in an investment portfolio for high-net-worth individuals, family offices and trustees who are looking for exposure to the European property market with the benefit of experienced management and liquidity.”
Assessing the fund's marketing potential Lewis says it could be suitable for IHT planning because it is offshore. He also thinks it could attract new clients seeking low volatility and some capital growth as stockmarkets recover, or as a tool for diversification. Melling says: “It can be marketed to high-net-worth individuals looking for a property investment with a low correlation to stockmarkets. Also, investors looking for gross returns and those with a couple of steps up the risk ladder.” Robinson says: “It could appeal to investors who want to diversify their property investments into Europe, especially as the UK is not looking too good in the short term.”
Considering the positive features of the fund Melling says: “The fund is euro denominated and Aviva is well known for property fund management. It has a strong management team and a focussed investment process. The fund doesn't invest directly in property.” Robinson says: “There is not much competition. Most property funds available to UK investors are invested solely in the UK and not many have European exposure. Many companies are trading at a discount.” Lewis says: “Norwich Union, which is part of the Aviva group, has always been fairly strong in property and Aviva Funds International will present a strong image. Low volatility with expected returns of between 7 per cent and 9 per cent a year present an attractive fundamental for more investors.”
Discussing the investment strategy Lewis says: “Investing in property funds throughout Europe rather than directly in European property should lead to more diversification. It should also have more liquidity and will allow the fund manager to react more quickly to changes in each country.” Melling says: “It is a good strategy. The manager takes into account global and national issues that can affect the tenancies of the properties owned by the property management company.” Robinson says: “I think some physical property would have made the fund less volatile. I understand shares are better from a liquidity point of view, but I think a 50/50 split would have been better.”
Turning to the fund's disadvantages Lewis says; “It follows a recent trend and it is dependent on the euro, which could fluctuate and cause problems if the UK delays entry into the euro.” Melling says: “The euro denomination could be off-putting to sterling clients. Property share funds can be more volatile than direct property funds, being more affected in the short-term by market sentiment.” Robinson says: “Physical property assets do not fluctuate in vale as much as property shares.”
Examining the company's reputation Lewis says Aviva, including Norwich Union, has a sound reputation and shows good performance. Melling says: “Aviva is one of the largest UK financial institutions. It has a good history of providing property euro investments for the UK market.” Robinson thinks the company has a good reputation.
Switching to an assessment of past performance, Robinson regards it as good in terms of property. Lewis adds that property in general has outperformed equities and bonds in the last three years.
Looking at the potential competition for the fund Melling says: “MSDW has a European property fund that has been managed since 1997, but its performance over the past 12 months may give the Privilege fund a head start.” Lewis says: “I anticipate other European property funds to be launched to take advantage of rising markets with built-in guarantees or locks. But UK property funds from Norwich Union and Standard Life could also provide competition.” Robinson suggests the TR Property investment trust.
The panel evaluate the charges. Lewis says: “For this type of property fund, it is fair, particularly with the 100 per cent allocation.” Melling says: “The charges are similar to competitors.” Robinson says: “The annual management fee is high at 2 per cent.”
Looking at the product literature Lewis says: “It's very formal, not at all user friendly, although the summary was far more helpful. “Melling says: “I found the literature to be clear and informative, answering the questions I would have asked. It is also well presented.” Robinson thinks it is good.
Summing up Melling says: “Property funds have seen tremendous investment over the past two years. With UK property funds becoming cash rich and quoting lower yields, a more diverse alternative may be an investment opportunity for those happy to invest in European property.” Lewis concludes: “This new type of European approach could do well.” Robinson concludes: “I could see more property funds diversifying into Europe in the future.”