The Bespoke IPD UK Monthly Index Tracker Fund is linked to the Investment Property Databank UK Monthly Index, which comprises around 3,700 retail, industrial and office properties.
The index was created in 1995 to provide an independent benchmark for the industry. It comprises the value of ‘bricks and mortar’held in balanced and specialist property unit trusts, pooled pension schemes and unit-linked insurance funds, rather than the value of property shares.
The new fund tracks the index by using swap derivatives. This means that as it does not invest directly in properties, it will not be affected by difficulties in finding suitable investment opportunities or of limited liquidity. Active fund managers that invest directly in property may be forced to hold a high proportion in cash while they find and buy investment properties. Physical property also lacks liquidity, which means active managers must also hold cash to pay investors who want to cash in their investment. In a rising market this can reduce returns.
In contrast, investors in the Bespoke fund benefit from full property exposure from day one and daily liquidity is provided, so the fund does not have to own cash.
Income is paid half yearly as interest rather than a dividend payment. This means that if investors do not pay tax or invest through an ISA, all of the tax deducted at source can potentially be reclaimed. The yield is also unaffected by charges, as these are taken from capital. However, this does mean that growth can be constrained.
Despite investors’ recent interest in commercial property markets further afield which offer higher yields than the UK, Bespoke says there will always be interest in the domestic market and believes its fund will be attractive because the yield is paid on the index.
The fund’s initial charge of 5 per cent and annual charge of 1.5 per cent may seem high for a tracker fund. However, Bespoke says a fund of this type, which pays initial and renewal commission to IFAs, will inevitably have higher charges than conventional equity trackers.