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Product matters – Reit stuff

Appetite for UK commercial property has pushed up prices to such an extent that returns are looking more pedestrian moving forwards.

Unsurprisingly, fund groups have been busy launching global property funds in anticipation of this.

Standard Life is the latest entrant with two global Reit funds, one targeted at the UK market and the other offshore. They are run by the same team behind its select property fund, which has been investing increasingly in overseas property shares.

This bodes well but it would be dangerous to judge the managers on a track record of just over one year. I will feel more comfortable when they have a further successful year or two under their belts.

Real estate investment trusts are a sensible way for fund managers to access global property markets as they make moving between different markets a breeze. They also enable the manager to build a good spread of investment from day one. But Reits tend to move more in line with stockmarkets than direct property, losing some diversification benefits.

Investors in traditional UK direct property funds should think twice before jumping into funds such as these. The lure of overseas property is tempting but expect higher volatility and do not bank on reliable income as these funds are run on a total return basis.

I prefer the Franklin global Reit fund, which has a more experienced team and strives to deliver a reliable income, but will keep a close eye on Standard’s new offerings.

Justin Modray is head of communications at Bestinvest.


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