BFS PROPERTY MANAGED SECURITIES
Type: Split-capital investment trust.
Aim: Income and growth by investing in freehold and long leasehold property and split-capital investment trusts.
Minimum investment: Subject to negotiation with stockbroker.
Place of registration: Guernsey.
Investment split: Freehold and long leasehold property 65 per cent, split-capital investment trusts 35 per cent.
Isa link: Yes.
Pep transfer: Yes.
Charges: Annual 1 per cent.
Commission: Isa initial 3 per cent, renewal 0.5 per cent.
Tel: 0800 7319222.
Investment philosophy 6.4
Past performance 5.7
Company's reputation 5.7
Product literature 5.7
The panel: Barry Laymond, Senior practitioner, Barry Laymond Financial Services,
Anton Robinson, Director, City Asset Management,
John Wright, Proprietor, Investment Management Services.
BFS managed properties is a split-capital investment trust aiming for capital growth and income by investing mainly in commercial property. It also invests in the income shares of other investment trusts.
Discussing the fund's place in the market Laymond says: “It provides a useful diversification into a different asset class to equities within the range of split capital trusts.” Robinson thinks there is strong demand for this type of product at present and Wright says: “It fits very well. I think this will attract money from people with long-term cash to invest.”
Identifying the kind of investors the investment trust is likely to attract Robinson says: “Ordinary shares for the income client and zero dividend preference shares for the risk averse capital growth client.” Wright says: “People looking to augment pensions provision who are paying the maximum into pensions and Isa funds. It could also suit retired people with long-term cash.”
Laymond says: “Zeros for clients as an alternative to building society accounts for risk averse clients and high-rate tax payers. Zeros are also ideal for capital growth for those not using capital gains tax allowance.
“The income shares are for investors wanting high levels of income, those going on to retirement, those wanting to cover nursing and long-term care fees and to use with income drawdown within a pension.”
Moving onto the likely marketing opportunities for the investment trust Wright says: “At a time when equity and bond investments look unsure or offer low returns, this investment will offer a new and low-risk alternative.” Robinson can see no new marketing opportunities and Laymond reiterates his earlier comments that the two share classes provide opportunities for different kinds of investors.
Turning to the main useful features and strong points of the investment trust Robinson says: “Property is seen as a safe haven from stockmarket investment at the moment.” Wright points out that investors get gross income because it is based offshore and invests in fairly low risk property.
Laymond says: “The use of commercial property to provide a secured income stream in the market which in equities, shows no sign of recovery. It also rents property to some government departments.”
Discussing the investment philosophy behind the investment trust Laymond says: “It offers good quality sound investments outside the current volatile marketplace.” Wright thinks it looks very acceptable and Robinson says: “Capital shares are difficult to get away with in the current stockmarket malaise, so BFS has left them out. I do not like a fund investing in other income shares of investment trusts, this looks risky going forwards.”
Moving to the drawbacks of the investment trust Wright says: “There are none obvious to me.” Laymond says: “As with all split-capital investment trusts, the gearing in the structure carries risk for capital loss if property values drop. However, this type of property is less volatile than equities.”
Robinson thinks the ordinary shares are high risk and points out the capital could be eroded over time. He adds that he is not familiar with Nexus property management services, the specialist property management and investment company acting as an adviser to BFS.
Assessing the reputation of BFS Laymond says: “It is regarded as the fastest growing fund management company over the last two or three years.” However, Wright says it is unknown to him, while Robinson adds: “Its reputation is middle of the road. Many clients would not have heard of it before.”
Moving to the company's past performance, again Robinson asserts that it is middle of the road and Wright says it is unknown to him. Laymond is more enthusiastic. He says: “Having £1.6bn under management shows the confidence of investors. Enough said, as this speaks for itself.”
The panel consider the potential competition BFS will face. Robinson says: “There are many in the marketplace.” Wright says ground rent and student accommodation trusts, which are low risk but are not long term.” Laymond is more specific. He says: “The Aberdeen real estates property fund, which is more specialist being exposed to the Irish property market. The BC Asset Management property income and growth trust is similar to the new BFS trust.”
Wright thinks the charges are normal for this type of investment and Robinson thinks they are reasonable. Laymond says: “There is a management fee of 0.1 per cent a month plus normal Pep and Isa charges when a wrapper product is used. Remember, it is more expensive to run property compared to equities due to factors such as rent collection.”
Turning to commission Laymond points out it is only payable where a Pep transfer or Isa wrapper is used. He feels 3 per cent initial and 0.5 per cent renewal is normal in the circumstances and adds: “Perhaps a higher commission and trail should be paid to allow for the extra time needed. Firstly, explaining to clients what investment trusts are and secondly the specific trust.” Wright feels it is fair and Robinson complains that there is no commission where a Pep transfer or Isa is not used.
Looking at the product literature, the panel hold different views. Robinson says: “It is a bog standard prospectus.” Wright says: “It is boring but factual.” Laymond says: “The fund fact sheets are excellent. The trust finder and the risk rating of funds is the best I have seen to date.”
Summing up Laymond says: “In spite of all the good publicity, investment trusts still remain an unknown product to the majority of the public.”