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Property Special Report: Making comparisons

FUNDS Gregor Watt considers the difficulties of assessing comparative property fund performance.

One of the problems which crops up when trying to look at the performance of property funds is the difficulty of comparing one fund with another.

With an equity fund, whether it is a tracker, a growth or income fund, you know roughly what the fund is going to be invested in and there is a clear benchmark to compare the fund’s performance with.

But when it comes to property, it is not that simple. Not only are there different fund structures to contend with, such as property unit trusts, exempt property unit trusts, limited partnerships and offshore investments, such as the Jersey property unit trusts, but there is also a wide variety of investment styles.

Under the overall umbrella of property, funds can be invested heavily in widely differing sectors, such as out of town shopping centres, West End London office space or a balanced range of property sectors.

Funds can also be either bricks and mortar funds invested in physical investments or securities funds (invested in shares in quoted property companies) or some mix of the two.

Comparing like with like can sometimes be an issue.

BestInvest head of communications Justin Modray says if you have the correct benchmark to compare the fund with understanding the fund becomes much easier.

“Where IFAs can sometimes have difficulty is comparing one fund with another,” he says.

The fact there is no one index for property funds makes comparing different funds an even more tricky proposition.

The HSBC/Association of Real Estate Funds/IPD property index lists a number of property funds, but they are both retail and institutional funds and the IMA specialist sector also lists a number of funds but has a number specialist equity funds also included in its universe. Neither index take account of different investment styles. For example in the IMA specialist sector the New Star Property fund, which invests predominately in physical UK commercial property, sits along side the Skandia Global Property Securities fund.

What is not in doubt is the strong investment returns that all forms of property have produced in the last few years. Over the last year, the average return from property funds in the IMA specialist sector is 17.36 per cent, with the top performers returning figures much higher than that. The Standard Life Select property fund, the Swip Euro real estate fund and the Premier PanEur property fund posted figures of 26.25 per cent, 25.6 per cent and 23.91 per cent respectively, which compares very favourably with returns from the FTSE 100, which returned 9.32 per cent over the same period.

However, for many investors, rather than try to compare funds, it is a matter of finding a fund manager whose judgement is trusted.

Modray says: “For a lot of investors, you put your faith in a particular fund manager rather than trying to compare different structures.”

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