The Threadneedle property unit trust is a Jersey-based fund that invests in UK commercial property.
Considering the market suitability of the fund, Posner says: “It is an unclassified Jersey-based unit trust. It invests in an actively-managed portfolio of UK commercial property.” Robinson says: “There is more competition than there was six months ago. It will fit in at the top end of the market. People are diversifying away from equities into property and bonds.”
Woodward says: “At the moment property funds are dominated by the insurance companies who market them as a link to single-premium bond funds. However, they have much lower minimum investments.”
Identifying the clients the fund could suit, Robinson says: “Someone looking for lower risk, lower volatility and to diversify their portfolio, possibly reducing their equity content. It is suitable for high income seekers, someone heading for, or in, retirement.”
Woodward says: “Pension clients in particular will be attracted to a professionally managed portfolio of property, supported by a good rental yield against current interest rate levels and lower charges than insurance-based funds.”
Posner says: “The fund is designated for use by pension funds, insurance companies, institutional investors, intermediaries and individuals with more than £250,000 to commit to it. It is intended as a longer-term investment for a client seeking a share in an activelymanaged commercial property portfolio, with an intended higher than average yield. It is aimed at a sophisticated investor, with sufficient wealth to await long-term growth in the value of the portfolio.”
Turning to the fund's marketing potential, Woodward says: “Pension fund clients will be attracted to this as a diversification from equities. Some limited companies will also be attracted by a long-term alternative to deposits.”
Posner says: “As a complex investment of limited access to individuals it is marketable on a face-to-face basis as it requires explanation and understanding by the investor. It is difficult to envisage any other suitable method of marketing this, especially having regard to its unclassified status.” Robinson views it as another property fund to mention to prospective clients.
Looking at the main useful features and strong points of the fund, Posner says: “The investment has been designed to offer tax-efficient returns and access to a well-managed property portfolio with a relatively high yield. Because the management team are highly experienced in this area of investment, their pedigree and undoubted expertise must make any offer of this nature an interesting proposition.”
Robinson mentions the high quarterly income and Threadneedle's good track record. Woodward says: “It is a good quality portfolio of commercial property which offers good diversification. The rental yield alone makes it an attractive proposition at current deposit rates.”
Examining the investment strategy of the fund, Woodward says: “It seems well enough thought out for what will be mainly commercial investors and the market does not offer significant choice.” Robinson thinks it seems pretty standard.
Posner says: “Having resolved that London and the South-east has probably reached a peak for property investment potential, Threadneedle is seeking to acquire property elsewhere. Commercial property in the provinces has not reached anywhere near the saturation level of the South-east and it is the fund managers' contention that this is worth exploiting.
“As with the rest of its well-managed property portfolios, it has applied checks and balances to protect investors. It brings a wealth of experience in effective property management.”
Pointing out the fund's disadvantages, Robinson highlights the high minimum investment, monthly pricing and that basic rate tax is deducted at source on income payments. Posner says: “It does not have disadvantages for the sector at which it is aimed. The only factor that might be seen as a disadvantage is that the creation of a new portfolio of managed commercial property requires the acquisition of property and we are dependent on this being there in the first place.
“Similarly, while the fund is being set up, there is a greater likelihood of realisations causing a forced sale in less attractive market conditions. Nevertheless, in the light of its past record of dealing and the nature of the offering, I do not feel it is likely to suffer too much difficulty over this.”
Woodward says: “The very high minimum investment is effectively precluding a lot of private individuals. Also, the ability of the manager to defer repurchases combined with monthly dealing make the fund slightly less appealing.”
Considering Threadneedle's reputation, Posner says: “It has an enviably good reputation for managing funds of this nature and it is well recognised as a market leader in this field.” Woodward says: “Threadneedle has a good reputation for both equity and bond investment.” Robinson sees it as solid and dependable.
Assessing the company's past performance, Robinson thinks it is above average, with a long track record. Woodward says: “Threadneedle has a good reputation and Eagle Star, from the same stable, has good returns from its property fund.”
Posner says: “The company has an excellent past performance record in this sector, with many accolades for this having been given over the years. While accepting all of the caveats over past performance, this is an instance where past performance is an essential guide to future returns, as it is the proven expertise of the property managers that is really on offer.”
Highlighting the main competition the fund is likely to provide Posner says: “I cannot identify an offering of a simi-lar nature to provide competition. The investment decision will be made on the factors outlined above.”
Woodward cites Norwich Union and insurance-based funds. Robinson goes for Glanmore, Close Brothers, Westbury property investment trust and Scottish Widows' UK balanced property fund.
The panel agree that the charges are reasonable.
Posner feels the commission is perfectly acceptable and flexible, while Robinson feels the renewal commission is fine but is concerned at the lack of initial commission. Woodward says: “Perhaps it is a little low for retail clients.”
Looking at the product literature, Woodward says: “It is OK but it could have been made more user-friendly to market to non-professional clients. Posner says: “Having regard to the nature of the offering, I consider the literature to be well presented and clear of ambiguity.” Robinson thinks it is OK.
Summing up, Posner says: “While the offering is to a limited market, it should be made clear that investments from as little as £25,000 are available from intermediaries, at the discretion of the fund manager.
Woodward says: “After poor equity market returns, I can see some investors are becoming more risk-averse and this might well be a good diversification.”
Eric Woodward, director, EP Ward & Co
Anton Robinson, director, City Asset Management
Michael Posner, principal, Charter Devon Law & Co