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Property matters

BFS managed properties is a split-capital investment trust that aims for capital growth and a high level of income by investing in commercial property and other investment trusts. The panel compare it to the Collins Stewart property acquisition and management (PAM) trust and the Henderson TR property investment trust.

Considering the market suitability of the BFS trust compared to the other products, Bottriell says: “The BFS plan is very similar to the PAM trust in that they are both split-capital investment trusts. However, the Henderson trust is not a split-capital trust as it produces a variable dividend payable in January and July each year.

“The BFS trust intends to acquire a £120m property portfolio in the next six months. PAM is much less geared than the BFS trust. It holds direct properties and is very well established. The Henderson product is a trust with predominate holdings in property companies. It is difficult not to conclude that the BFS trust is a much riskier proposition and possibly less suitable.”

Temple thinks the Collins Stewart trust has a similar structure to the BFS trust but feels Henderson&#39s is more suitable for capital growth. Howell says: “I would normally say all are fairly suitable to the markets. Henderson is virtually all property related and suits those who want specific property only investments. BFS has some property exposure but has an element of other investments in the income portfolio.

“Collins Stewart has fairly high equity exposure at present. After the market settles, assuming there is no further property damage, all should be OK again.”

Looking at the investment split of each trust, Temple says: “The investment split of the BFS trust will be initially 65 per cent invested to a property portfolio, the remainder in the income shares of other investment trusts. Collins Stewart has 70 per cent in a property portfolio, 2 per cent in cash and 28 per cent in bonds.

“The Henderson trust has a high proportion of quoted UK equities at 64 per cent, mainly in UK property companies. It has 0.5 per cent in unquoted UK companies, 23.1 per cent in property and 3.3 per cent in bonds and cash. The remainder is in overseas equities – again property companies.”

Howell says: “BFS has a lower investment in property and property-related investments than Henderson but higher than Collins Stewart. It depends on what is required but Henderson is the only one fully into property. Collins Stewart has high equity exposure.”

Bottriell says: “The BFS trust is very highly geared. It intends to invest 35 per cent of total assets in the geared income shares of other splits. This is very high risk. The other 65 per cent is to be invested in commercial property over the next six months.

“We cannot help but feel that they will be buying on a market peak. Also, property agents will be aware that there is a bunch of guys in Guernsey with £125m which they have got to get invested. It is difficult to see any stunning bargains being acquired.”

Considering the investment philosophies of the trusts, Howell thinks the Henderson trust is good but is concerned that although the portfolio is predominantly UK-oriented. It can also invest overseas in places like New York. He adds that with shares falling, we must wait for markets to settle and feels the BFS income portfolio could be vulnerable, while Collins Stewart could be very vulnerable.

Bottriell feels the BFS trust is considerably more adventurous than the other trusts because it is highly geared and also invests in the geared income shares of other split-capital investment trusts. He warns that this is not for the faint-hearted.

Temple says: “The BFS trust intends to build a high quality property portfolio with a secure income stream which, together with the income portfolio, will underpin the proposed dividend payments. Collins Stewart&#39s trust has an actively managed industrial and commercial property portfolio underpinned with exposure to a bond portfolio managed by Aberdeen.

“Property and bonds are actively bought and sold to extract maximum shareholder value. The Henderson trust is a slightly above average risk utilising property shares more than active property investment to achieve its aims.”

Identifying the strong points of the trusts, Riach says: “I did not notice any major strong points for BFS managed properties trust compared to the PAM trust and Henderson&#39s trust. Henderson has an advantage for the small investor by offering a regular saving option for a minimum investment of only £50 a month and Henderson&#39s minimum lump-sum inv-estment is as low as £500.”

Bottriell says: “The ability to pay a 9 per cent income is going to be the unique selling point of BFS.”

Temple says: “BFS is a new trust and initially likely to meet its yield objective. However, property acquisition will take time and in the current climate, one would be cautious that they may be buying at the top of the market. The Collins Stewart PAM trust is similar to BFS but has a track record of actively managing the property portfolio. Also, it uses a well-known manager in Aberdeen for its bond portfolio.”

Comparing the drawbacks of the three trusts, Howell dislikes the structure of the BFS income portfolio and the income portfolio of the Collins Stewart trusts. He is concerned that the Henderson trust can also invest in property overseas in places such as New York.

Bottriell is critical of the risks BFS takes compared to the other trusts because of the gearing and cross sector holdings. He also feels that it could buy property in what may be a peak market given the economic outlook.

Temple follows this by saying: “The drawback of the BFS trust could be that in the current climate property acquisition and arrangement of long-term fixed leases may prove difficult, although the expected return seems reasonable.”

Riach says: “Many private investors will not have heard of BFS. I tend to find that many private investors like to invest with a well-known name they can identify with.”

Discussing the companies&#39 reputations, Riach says: “All three companies have a good reputation with IFAs and professional investors. BFS is a fast-growing and successful independent asset manager that was established in 1985.

“It won the award of first place over one year in Standard & Poor&#39s UK Investment Trusts Survey in the smaller group category during 2000. This category includes managers with two to six funds in two or more sectors, managing at least £50m in fund assets to date. Henderson has managed property assets for more than four decades and it is ranked in the top ten international property investment managers. It is one of the largest property investment managers in the UK.”

Temple says: “BFS was founded in 1985 and specialises in the management of investment trusts with particular emphasis on the split-capital sector. Collins Stewart has a good reputation as commercial brokers with corporate finance and fund management teams.”

Looking at past performance, Bottriell thinks the companies stand up well to scrutiny. Temple says: “BFS has no past performance record as it was launched in July. The PAM trust, listed in June 2000, is currently meeting a 9.5 per cent yield from ordinary shares. Henderson TR property has a long-term record showing 15.4 per cent and 10.9 per cent over five and 10 years respectively.”

Assessing the charges, Riach says: ” I believe that all three companies have fair charging rates.” Bottriell notes the dealing charges on the Henderson trust are cheaper than BFS but this is probably because it invests mainly in property shares rather than direct property.

Considering the commission, Temple notes that BFS only pays commission on the Isa. He says: “There is no commission for arranging direct investment to BFS and PAM trusts as these shares should be purchased via a stockbroker. Up to 3 per cent commission can be built into purchase of Henderson investment trusts.” Riach and Bottriell also point this out.

Looking at the literature, Riach says: ” The BFS literature is very clear and basic, other than the prospectus, which was very long and uninteresting to read. It was good to see that all three companies have websites.”

Temple says: “BFS has prepared a quarterly news sheet showing current statistics confirming objectives, fund manager comments and stockmarket comment. This is rather limited information and should give more detail on acquisition and disposals. Collins Stewart has issued accounts and a newsletter which is informative, especially looking at various property deals and projects. Hendersons produce a full range of brochures for Isa and investment trust share plan together with a news sheet giving statistics.”

Howell says: “The Henderson TR trust is the best, it is comprehensive and well presented. The BFS literature is good – only one sheet of information is included, with no application form. Collins Stewart is well presented but the information is limited and there is no application form.”

Bottriell says: “The BFS literature is brief. It gives useful information but not much. The prospectus and listing were informative although not pretty. The Henderson stuff was excellent while the Collins Stewart literature was only OK.”


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