View more on these topics

Threadneedle property team has an eye for high yield

Threadneedle Investments is launching a retail fund that invests directly in high-yielding UK commercial property.

The new fund will be managed by Threadneedle directors Don Jordison and Chris Morrogh. They have been running property funds mainly for the institutional market and currently have over £1bn assets under management, including the offshore Threadneedle property trust.

The new fund will be the group’s first onshore property unit trust. The company says it wanted to launch an onshore fund for retail investors because this type of property fund is now eligible for Isas and Pep transfers.
According to Threadneedle, income returns will dominate total returns from UK commercial property over the long term, but investors have been blind to this due to the recent period of strong capital growth.

Jordison and Morrogh will focus on properties that can deliver high yields bit which do not cost as much to buy as properties in the ‘super prime’ area of the market. According to Threadneedle, the yield on ‘super prime’ properties is quite low and it only takes one glitch in rental growth to destroy a property’s value.

They believe also assets are very scarce and expensive in the super prime market relative to the risk and return ‘sweet spot’ they have identified.
Threadneedle’s ‘sweet spot’ is just below the prime area of the market. While tenants are likely to regard these properties s as high quality, the managers say investors may not immediately hold the same view.

The fund will not invest in speculative development because the managers are uncomfortable with the level of risk involved. They point out that in genera the only property companies that go bust are developers and there are potentially too many things that could go wrong.

Instead they will focus on the secondary market as they feel the potential risks, such as vacant periods after leases expire, are overstated. In their experience, only 15 per cent of tenants leave at the end of every lease.
Upgrading and refurbishing existing properties creates and protects value in Threadneedle’s view. They will concentrate on active management of property portfolios, controlling rent reviews, lease renewals and re-letting.
Threadneedle believes the fact that each property is unique means that portfolios need to be run with more flexibility than equity portfolios.

The managers will focus on stockpicking rather than benchmarking because they think that managing to an index such as the IPD does not add value. They point out that a direct property fund cannot replicate the entire property market like an equity fund can replicate stockmarket indices, so property manager need to have a strong conviction about every property they buy.

This fund stands out among many recent property-based launches as it is not jumping enthusiastically on the Reits bandwagon. Although the fund can include property shares, these will be used sparingly as they are more volatile than direct property investments.


Product matters

When a new fund launches, there is always a period of reflection from the rest of the industry as they wait to see if the product is viable.Sometimes, it is a case of the innovator being overtaken by the mimickers but in this case, the slow trickle of global equity income funds seem to have […]

Sipp firm waives fees on transfers

EBS Management, the pension arm of Charles Stanley, has waived fees on transfers to its self-invested personal pension before the onset of regulation in April.The firm, which administers more than £800m across its portfolio of 2,000 Sipps and small self-administered schemes, is offering the terms to clients of IFAs and other pension intermediaries.It is hoping […]

GE fined £610,000 over PPI failings

The FSA has fined GE Capital Bank £610,000 for failing to have adequate systems and controls in place for selling payment protection insurance. The regulator is expected to take enforcement action against up to five further PPI providers.

Harrison slams Suisse

Threadneedle head of UK equities Leigh Harrison has slammed Credit Suisse for not making the most of Bill Mott during his time at the firm.Harrison, who succeeded Mott on Credit Suisse’s income funds, says the firm had one of the best fund managers working for it for the past 25 years but “singularly failed to […]

Is three a crowd?

The pension versus Isa debate has raged on and off for years. Les Cameron, head of technical at Prudential, asks if three’s a crowd.   I think the debate was arguably settled by pensions freedom when the biggest downside of pensions – limited access and poor death benefits – was fundamentally changed. Total access, albeit with […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm