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Gullwing flies to property

GULLWING ASSET MANAGEMENT

EXEMPT PROPERTY UNIT TRUST

Type: Unit trust

Aim: Growth by investing in retail and leisure property

Minimum investment: Lump sum £50,000

Investment split: 100% in retail and leisure property

Isa link: No

Pep transfers: No

Charges: Initial 3.75%, annual 1.1%

Commission: Initial up to 2%

Contact: www.gullwingfund.com

The panel: Bruce MacFarlane, partner, Capital Trust Financial Management,
Roy Rutter, principal, Aptitude Financial Management,
Mike Posner, principal, Charter Devon Law & Co.

Suitability to market 7.4

Investment strategy 6.4

Past performance 5.0

Company&#39s reputation 5.0

Charges 5.4

Commission 3.4

Product literature 5.0

The Gullwing exempt unit property trust is a unit trust that invests in a portfolio of commercial properties within the retail and leisure sectors.
Looking at how the fund fits into the market Posner says: “This is a niche market retail commercial property fund, with an intended seven-year investment life.” Rutter says: “It is a useful addition to a range of property-linked investments open to self-invested personal pensions (Sipps) and small self-administered schemes (SSASs).” MacFarlane says: “The market for this type of product is small, being restricted to charity, Sipp and SSAS accounts. With few providers of this type of contract, the Gullwing product provides an interesting addition to the marketplace.”

Identifying the type of client the fund could attract Rutter and MacFarlane mention sophisticated Sipp and SSAS investors. Posner agrees but also suggests expatriate investors who will escape capital gains tax liabilities.”

Highlighting the fund&#39s marketing potential, Posner says: “Because this is a new fund investing in retail property, intending that the premises be let to relatively stable blue-chip tenants, the ability to profit from a new venture should be of interest for inclusion in many larger portfolios as a medium-risk investment.” Rutter says: “Marketing opportunities are limited within my client base, but it may appeal to Sipp clients who want to reduce their equity exposure.” MacFarlane says: “The product will offer a limited but focused marketing opportunity to Sipp and SSAS clients.”

Pointing to the main useful features and strong points of the fund MacFarlane says: “Property, as an asset class, offers an alternative and non-correlated investment to equities. Equities have suffered badly in the last few years and this has impacted on investors&#39 confidence in stockmarket returns. Low interest rates relative to property yields currently allow a high degree of gearing, which should provide better than average investment returns.” Rutter says: “It has a known lifespan of between seven and nine years. Commercial retail property has consistently held up well and it is available as a capital gains tax exempt fund.”

Posner says: “Because it is intended to fall in the lower-risk category of investments, and gives the opportunity to obtain a relatively high target yield of 8.9 per cent a year, it may be of interest to investors with reasonably large capital reserves who have a minimum of £50,000 to invest in commercial property for capital growth.”

Discussing the investment strategy Rutter says: “Gullwing has a considerable concentration in the retailer Woolworth and in general, the location of its property holdings are in smaller shopping areas. It has avoided the bigger town centres and the out of town malls, but it remains to be seen whether this strategy offers the best potential. However, there is a good spread of locations at a time when the London and South East area is looking overpriced.”

Posner says: “Property funds are the current flavour of the month among those who are scared of buying into a volatile equity market and this offers a ground-floor opportunity to buy into a part of this boom market. The retail sector has managed to weather most of the troubles over the past couple of years, but how much longer that will last is pure speculation. However, a good property fund would form part of most balanced portfolios in the current climate and the strategy adopted by Gullwing is sufficiently novel to make it of interest as an alternative to the more established funds.”

MacFarlane says: “The investment strategy seems sound with a diversified portfolio weighted toward retail rather than office lettings. These are let to quality tenants with at least 12 years unexpired in the lease and provides for five-year upwards only rent reviews. With sound active management, there should be opportunities to add value to the portfolio during the review of the leases which take place at varying dates within the next five years.”

Moving on to the drawbacks of the fund, Posner is concerned about the gearing of up to 75 per cent and the target yield of 7.25 per cent. He also points out that Gullwing expects the retail commercial sector continues to flourish, rather than becoming a victim of excess capacity over demand. He adds: “We are accepting that the managers are as capable as their published CV&#39s portray.”

Rutter says: “The minimum investment is high and the charges seem high when linked up. Some clients may prefer an open-ended fund and getting the name of Gullwing across could be difficult. There is also a degree of illiquidity about this type of property investment.” MacFarlane says: “The investment is highly geared, which adds a higher degree of risk to the investment. Furthermore, the investment is illiquid and returns to investors are dependent on the sale of properties within the portfolio.”

Examining Gullwing&#39s reputation the panel say that it has yet to make a name for itself. They point out that the only reputation is that which they have portrayed itself in the literature.

Looking at past performance Rutter and MacFarlane say it is unknown. Posner says: “This is a new venture from a group that appears to have adequate experience to carry out the objectives detailed. But as a new venture it should be judged accordingly.”

Identifying the competition the fund could face Posner says: “Zurich Group, Scottish Widows, Standard Life and Norwich Union will offer the competition. However, this is a ground-floor opportunity to invest in a new property portfolio and the returns are probably commensurate to the risk.”

Rutter says: “I can see Sipp and SSAS investors going for property exposure through a name they know, such as Standard Life.” MacFarlane says: “There are a number of niche market players offering investors access to the commercial property market. Close Brothers is probably the best known but it would concentrate on single property syndication as opposed to going the multiple property portfolio route.”

Assessing the charges, the panel think they are reasonable but point out that Gullwing also makes a performance-related charge.

Turning to commission Rutter says: “A product such as this is specialist and perhaps more time is required to explain it to clients, so 2 per cent looks mean. However, many Sipp and SSAS clients are fee-paying anyway.”

Posner says: “The commission is lower than that usually provided, but the fund is more likely to be relevant to those charging fees.” MacFarlane says: “The commission payable on a sophisticated product such as this deserves to be higher. There is no mention of renewal commission which would seem reasonable on a contract of seven to nine years.”

Looking at the product literature Rutter says: “It is boring, but probably about right for the market it is aiming at.” MacFarlane says: “It is reasonably good and well presented, with a good amount of detail. It is presented in a format for the more sophisticated investor.” Posner says: “The product literature is well presented and understandable.”

Summing up, Posner says: “This would normally fall into a lower-risk category but I would consider it to be medium to high risk. Nevertheless, the product is of interest and worth more than a glance.”

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