The problem with UK property unit trusts is that they have to hold at least 20 per cent in cash or property shares. M&G has overcome this problem by launching a property fund in Guernsey with the property assets managed by Prudential Property Investment Managers, the biggest property company in the UK with over £12bn under management.
Its past performance is outstanding and the property portfolio of its with-profits life fund has outperformed the property sector average over one, three, five, 10 and 20 years. For example, returns over 20 years have averaged 11.2 per cent a year and even over the past year it has managed a return of 11.7 per cent.
Future performance is underpinned by the 6.7 per cent yield on the properties allocated to this new fund.
It has seeded the new fund with £100m of existing property. Unlike the average fund, which has 13 per cent of its property portfolio in central London, Prudential has only 2 per cent in this area. I believe this is a sensible precaution because of possible terrorist attacks.
Most investors are very much underinvested in commercial property. Less than 1 per cent of unit trusts invested directly into property, largely due to the lack of choice of suitable vehicles.
Another important aspect of commercial property is that performance does not move in line with equities, nor is it nearly as volatile.
This new M&G property fund not only offers full investment but also daily dealing and favourable redemption terms – daily for individuals.
While no investment is risk-free, I believe that a property fund which substantially avoids central London properties will prove to be an excellent investment. This one is particularly attractive because it is offshore, with the tax advantages this entails.