Standard Life Investments has created the UK property income fund, an offshore Oeic that invests in UK commercial property.
The fund aims to produce a yield of 6.5 per cent a year, but will also provide some scope for capital growth. It has already acquired a £200m initial portfolio of properties and a further £50m is waiting to be invested. The portfolio is geographically diverse, but the office sector provides the main focus at 53 per cent of the portfolio. The weighting of the industrial property sector is currently 29 per cent, with the remaining 18 per cent going into retail property.
Despite the fund's preference for offices, it has no exposure to the Central London office market. This is because there is currently a lack of occupier demand for office space in this region and Standard Life feels this could continue in the short term.
Properties within the portfolio will be let on long-term leases to quality tenants such as GlaxoSmithKline, Xerox and McDonalds. Standard Life hopes this will ensure the income stream is secure.
Unlike some property funds, this fund will not be overweight in the retail property sector. Andrew Jackson, investment director, property at Standard life Investments, explains the retail property sector has performed well on the back of consumer confidence. Many consumers are taking on more debt on the back of rising house prices. But Standard Life is cautious because any fall in house prices would have a negative effect on the retail property sector.
The fund could suit investors who are looking for income and who want to diversify away from equities and bonds. However, with a high percentage going into offices, this fund could miss out on the growth potential in the retail property sector.