Aim: Income and growth by investing globally in direct property and property shares
Minimum investment: Lump sum £1,000, monthly £100
Investment split: 80% direct property, 10-15% international property securities/Reits, 5-10% cash
Isa link: Yes
Pep transfers: Yes
Charges: Initial 5%, annual 1.75%
Special offer: Initial charge reduced to 4% for lump sum investments
Offer period: Until June 4, 2007
Commission: Initial 3%, renewal 0.5%
Tel: 0845 608 8702
The New Star international property fund invests directly in commercial property on a global basis, with a small amount invested in property securities including Reits to provide liquidity. It has a target income yield of 4 per cent.
Morgans Independent Advisers director Martin Dilke-Wing thinks the fund may be good for IFAs in that it provides diversification from the usual UK-centric commercial property offerings provided by big traditional commercial property funds.
“The charges appear reasonable for a fund of its type and the anticipated yields appear to be conservative, bearing out the fact that the emphasis is very much on good quality tenants and a broad range of commercial property encompassing retail, office, and possibly light industrial developments.”
Dilke-Wing believes the fund will tend to have minimal correlation to equity and bond returns. “It may also provide the opportunity to generate returns from a sector where certainly in the UK, many experts are expressing concern about whether the sector is overvalued and capable of producing ongoing competitive returns, having performed very well generally over the last decade.”
However, he has a number of reservations about this product. “The indicated portfolio spread in terms of geography would appear to be completely open for discussion. It is pretty much ‘we will invest anywhere we think that we might make money’ – there doesn’t appear to be any indicative planned allocation.”
Dilke-Wing feels this immediately makes the fund unsuitable for some clients – for example, those who consider that they have enough exposure to the Far East, whether through property or equities.
“In our experience, figures quoted by New Star in its supporting documentation would appear broadly accurate. In other words, 75 per cent of responses from advisers suggested that they would recommend international commercial property as an asset class at a level of up to 10 per cent of portfolio exposure to a moderate risk client. In reality, I would imagine that the overall portfolio allocation to international property in portfolio construction over the next couple of years is likely to be at the lower end of this estimate,” he says.
The key point for Dilke-Wing is that this degree of diversification tends to become more relevant and appropriate at the higher levels of Sipp or direct investment. “These high-net-worth clients tend to have a liking for non-equity correlated assets, a higher degree of investment intelligence and appreciation of geographical, credit, currency and investment risk. In recommending the fund we would undeniably be recommending a proven management team. However, given the information provided to date, I would not be in any position to provide the clients with any more idea about where their money was going to be invested other than a relatively bland’ could be anywhere they think they can make money’ statement,” he says.
In Dilke-Wing’s experience, most clients of the type that are likely to be interested in this asset class are more likely to be interested in specific countries or projects, with specific target returns and will have a good understanding of the likely risks. “At the lower end of the market, I would be unlikely to introduce this level of diversification as most clients will not have any interest in a portfolio of international commercial property, unless it plummets, in which case they will want to know why they are there.”
Scanning the market for competitors, Dilke-Wing says: “The major competition of its type will be provided by the major players in this sector – big UK funds such as Norwich Union, Standard Life, Aberdeen, New Star itself and the relatively new international funds such as Fidelity.”
He believes that more competition will be provided by the niche promoters of single country specific projects looking at relatively small developments in, for example, East Germany and Poland. He also mentions international holiday developments and specialists such as Merchant Place, where the prospective returns may be higher and where the client knows exactly what they are letting themselves in for.
Summing up, Dilke-Wing says: “I can’t help but think that this is another attempt by a mainstream provider to protect their revenue stream, recognising that the UK commercial property sector may be overheating and that perhaps investors may look to preserve the gains that they have made in equities over the last four years and UK property over the last decade.”
He thinks its appeal will be limited and may only attract investments at the lower end of the market.
He concludes: “The fact that New Star is the manager and has an impressive pool of management talent to draw on may make this fund much more attractive than it would have been had it been launched by a less high profile group. But in the event that New Star’s own figures are correct, and the fund ends up being recommended as the makeweight in a broadly diversified portfolio, there will have to be a lot of portfolios in the £100,000- £1m range to make the fund worth launching.”
Suitability to market: Average
Investment strategy: Average
Adviser remuneration: Average