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Closing in on property

Closing in on property

Close Brothers Capital Appreciation Trust

Type: Open ended investment company.

Aim: Growth by investing in residential retirement property in the UK.

Minimum investment: Lump sum £5,000.

Place of registration: Guernsey.

Investment split: 33 per cent London & South East, 20 per cent North West & West Midlands, 18 per cent East, 14 per cent South West, 15 per cent rest of UK.

Yield: Nil.

Charges: Initial 5 per cent, annual 1.7 per cent.

Commission: Initial 3 per cent until July 17 2000, 2 per cent thereafter.

Tel: 020 7246 4087.

Bob Vaughn, Partner, Ashley Vaughn Pensions,

Lyn Cooke, Financial adviser, B.P. Sanders & Co,

David Cowell, Andrews Gwynne & Associates,

Andrew Beddows, Financial practitioner, Inter-Alliance.

Company’s reputation 7.8

Investment strategy 8.3

Charges 4.0

Commission 4.5

Product literature 6.5

Close Property Investment’s capital appreciation trust is an offshore Oeic aiming to provide growth by investing in retirement property in the UK. It will buy properties at a discount of their open market value and will acquire £2.50 of property for every £1 raised.

Commenting on the product’s investment strategy, Vaughn says: “The idea is very appealing on the surface. But in reality, the stock backing the investment –retirement property – is very limiting. So much depends on future property values and the life expectancy of the tenants.”

Beddows thinks the investment strategy is excellent. He says: “The ageing population should ensure long-term returns of retirement property above those of more typical general residential property, as demand will rise as the population ages.”

But he adds: “The ability to purchase property at a discount of 30 per cent due to being a cash buyer is hard to comprehend. Why do they not just put the properties back on the market and sell them for the open market value?”

Cowell says: “The strategy is sound but obviously it depends upon the manager’s ability to find properties at appropriate discounts and tenants with available funds.”

Moving onto on the marketing opportunities the product is likely to provide, Cooke says: “It is excellent for capital rich clients in their 40s and 50s who still have an income and need capital growth. It is also suitable for the elderly investor who may wish to gift an investment to younger family or friends.”

Beddows says: “I will mainly talk to my higher net worth clients about it. SIPP and SSAS clients will also appreciate the diversification opportunities it brings. Clients who wish to reduce the overall volatility of their portfolios will be happy to invest in this product as there is generally little correlation between equity and property markets.”

Vaughn thinks marketing opportunities are limited. He says: “It is only likely to appeal on a whim and is difficult to recommend due to uncertainty over future rewards and the ability to obtain the return of capital.”

The panel are split about the product’s suitability to the market. Cooke thinks it is for medium to long term growth where no income is required.

Cowell says: “It is an interesting variation of the buy to let schemes. It is a logical development of the old BES which invested in residential property.”

Beddows says: “It is either for investors wishing to diversify their portfolios away from a heavy equity bias or sophisticated investors wishing to make a specific bet on property. It is very innovative – a useful alternative to equity funds and other property unit trusts.”

But Vaughn is less complimentary. He says: “While the product may appear to be a new investment concept it can be likened to previous BES, VCT and enterprise investment schemes but without tax breaks.”

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