Property has become increasingly popular with investors in recent months. According to Cofunds, it was the most popular IMA sector in July, with 62 per cent of net retail sales going into property funds.
The sector was also most popular in May and came second to UK equity income in June when Neil Woodford launched his new fund.
But with a range of ways to access the asset class, not to mention the different types of property investment available, what is the best way to buy in?
Psigma Investment Management chief investment officer Tom Becket sees asset-backed securities as a viable investment route to property.
He says: “We started a bespoke mandate with TwentyFour Asset Management, playing the property recovery via the indirect route through ABSs.
“If you look at the opportunities we saw last year, we could invest in quite liquid ABSs, most of which were investment grade. If I juxtapose that with yields of property funds, the income opportunity from ABSs has been much more attractive.”
Harwood Capital multi-manager Richard Philbin has property exposure within his portfolio but is wary of the difficulties posed by the asset class.
He says: “People make the mistake of lumping all property together and assuming it is all the same. We have to remember the cost of dealing in property.
“It is good for the longer-term investment view but you have to look at property much more from a yield perspective than from a capital appreciation perspective.”
Aviva Investors fund manager Nick Samouilhan accesses property via an open-ended fund but regards property exposure as something that can be left alone to look after itself.
Samouilhan says: “We allocated a few percentage points to property at the beginning of the year but since property is a long-term and illiquid play, there is no point continually adding to this. You let the original allocation dilute over time and go to work. Property is not an asset class you can chase after.”
Hargreaves Lansdown senior analyst Laith Khalaf sees investment trusts and equities related to properties as the two best ways to invest.
Khalaf says: “Running property in a closed-ended fund is not a bad idea as clients won’t have claws on their money. So liquidity is less of an issue and you can make a long-term judgement.
“Accessing property through property-related stocks is quite a good way of doing it but it increases the correlation to equities in general. Property should be more of a diversifier.”
Charles Stanley Direct head of investment research Ben Yearsley says: “Instinctively, I would say closed-ended is better than open-ended because property is illiquid and by going down this route you get away from the liquidity issue.
“The problem comes with the premiums you have to pay in property trusts right now. For example, the F&C Commercial Property Trust is on a 12 per cent premium and you have to think: how will I get that money back? The premium takes away from the returns but with open-ended funds you are faced with liquidity issues.
“Unfortunately, there is no perfect answer. Property is one of the most awkward asset classes. I almost want it to carry on unnoticed so there are no massive flows to worry about.”
So has the time to make an unnoticed move into property come and gone?
Becket says: “I am quite anti-consensus when it comes to the sentiment on property. Investments are becoming much more difficult to justify.
“Inflows to bricks and mortar property funds cause me concern. We are seeing fund managers being forced to be less disciplined when selecting property because of this demand.”
Russell Investments senior portfolio manager David Vickers also has misgivings about property because he believes it has been caught up with other asset classes which have seen their valuations rise.
Vickers says: “I am as wary with property as I am with any asset class because there is nothing left in the market that is cheap on a relative basis. Just look at prime London – the market has gone crazy.
“A lot of people flocked to property as a bond proxy and that needs to be kept in mind for the day when bonds do well again. The trouble with property is at the moment it’s like betting on yesterday’s win.”
Samouilhan says: “Most of the gains have either been had or are about to be had.
“If you are not in it now, you will have missed a lot of the gains as property is not something you can get in and out of easily.”
Chelsea Financial Services managing director Darius McDermott
Property is an interesting asset class and we see it giving positive returns for the next few years.
We are already a few years into the property cycle and we added it to our portfolio last year as a result. Since then, there have been quite a lot of inflows into the sector so people need to keep in mind that some of these funds will have higher cash weightings.