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Reit fund sets the Standard

Standard Life Investments has launched two funds – one onshore and one offshore – that invest globally in Reits and other property-related equities.

Both funds aim for a total return comprising income and growth. They will be managed by investment director Andrew Jackson, who runs the Continental European direct property and listed property funds. Svitlana Gubriy will be his deputy.

A Reit is an investment trust that invests only in property and trades on the stockmarket. Most of the rent from properties can be passed directly to investors free of corporation tax under the Reit structure. In most circumstances, profits on the sale of assets can be passed to shareholders free of corporation tax and most of the rental profits must be passed on to investors. This boosts dividend yields for investors, making Reits attractive to those looking for income.

When selecting Reits for the new funds, the managers will go through a four-stage process. Initially, they will look at in-house research on world property markets, followed by an assessment of how attractive each region’s property markets are. Once the best regions are identified, the managers screen stocks to decide which Reits or property companies to invest in.

Underlying property portfolios are also examined, with the managers looking at whether the leases are well structured with high quality tenants, are void periods are at a low level, is gearing used effectively and, whether the management fee is at an appropriate level.

Compared with direct property investments, Reits are more flexible as shares can be bought and sold on the stock exchange. They cost efficient access to global property markets and are more liquid. Managers of direct property funds have to balance the need for liquidity with the need to make deals in the property market. Managers may solve this by restricting investors’ access to their money through notice periods but Reits do not need to do this.

However, Reit funds are likely to have higher short-term volatility than direct property funds. Standard Life Investments may also face competition from other funds from companies such as Sarasin Chiswell, Fidelity, Skandia and Schroders.

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