WILLIAMS DE BROE
First Housing Investment Trust
Type: Split-capital investment trust.
Aim: Growth by investing in properties in England, Scotland and Wales with a maximum value of £125,000 in London and £85,000 elsewhere.
Minimum investment: £2,000.
Maximum investment: None.
Investment split: 100 per cent in properties in England, Scotland and Wales.
Types of share: Capital shares and income shares.
Isa link: No.
Pep transfers: No.
Redemption date: April 24, 2011.
Commission: Initial – income shares 1 per cent capital shares 3 per cent.
Tel: 020 7898 2380.
Investment Philosophy 7.5
Past Performance 5.0
Company's Reputation 7.5
Product Literature 6.0
Williams de Broe has introduced the first housing investment trust, a split-capital investment trust that invests in properties in England, Wales and Scotland.
Looking at how the trust fits into the market, the panel are intrigued. Woodward says: “This is an interesting split level investment trust offering an alternative to equities.”
Briggs says: “The trust is the first of its type, so it should command a great deal of interest for clients who are already sold on the advantages of investing in residential property.”
Vaughn says: “The trust is a relatively new concept, offering an investment into the buy-to-let market without the hassle of individual purchases. There is scope to provide high income without the associated risks of equities or junk bonds or capital appreciation from potential increases in property values at a time of uncertainty in the stockmarkets.”
Burke adds: “This is the first trust of its type pursuant to sectors 508A, 508B & 842 of the taxes act. Previously clients wishing to invest in residential property collective investments had to look at offshore unit trusts. Given the almost global downturn in stockmarkets at present, I think an equity based product, which has such a solid asset backed base, would prove very popular. The anticipated high level of income attached to the income shares (rising to nine per cent net) will also be very attractive. This is the sort of product which might be successfully used to introduce the concept of split capital trusts to new investors.”
Turning to the type of client that the trust is suitable for, Briggs says: “This product has the scope to appeal to the broad cross-section of client, from the more risk-averse to the adventurous. The commercial property sector is a somewhat forgotten area that should arguably form a part of every portfolio.”
Woodward says: “It will appeal to various investors, including growth investors who do not want the same risks as equity trusts and who will find the capital shares attractive. It will also appeal to income seekers who want an excellent income which might go up.”
Vaughn says: “Generally I feel that the trust would be suited to the more experienced investor due to its split capital make-up and variables of income and capital reliability. It could be useful, to those investors desperate for high income even at the possibility of some capital erosion, although the promoters hint that there is little danger of capital loss.”
Moving on to the marketing opportunities that the product provides, Burke says: “Many will see the income level of the trust as a useful marketing tool. Furthermore the underlying investment concept of the trust will be readily understood by most investors as it invests in something which they are extremely familiar with, namely UK residential property. It is harder to have faith in investing in widgets if you do not have a clear understanding of what a widget is.”
Briggs is enthusiastic. He says: “For once I am excited and think that this trust has applications and will be of interest to my clients. I will be mentioning it in my next newsletter!”
Vaughn is a little more cautious. He says: “This type of plan will appeal to those investors who are always looking for something different. It could be recommended by advisers instructed to obtain high income levels. I do not feel that the appeal of this product is likely to be far reaching, but there are likely to be enough investors around to ensure success, especially with stockmarkets around the world in a state of uncertainty.”
Examining the main useful features and strong points of the product, Burke says: “The product has a higher than anticipated level of income with the underlying assets readily understood by the investing public as an asset that can be seen as a safe option when the stockmarkets are falling.”
Briggs says: “There are a number of strong points. It has a low minimum investment level of £2,000, the split capital structure gives investors the choice of income or capital shares or a combination of the two, and finally it has a fixed lifespan with money back after ten years.”
Vaughn says: “The strong points are the fact that you can invest in property, which is perceived to be safer than equities, and the fact that you can select the type of shares, ie income or growth or a combination.”
Turning to the drawbacks of the plan, Burke says: “One disadvantage is that the regulations governing the trust stipulate that the maximum purchase prices that can be paid per property are £85,000 outside London and £125,000 in the capital. These limitations are based on 1988 property prices and there is no guarantee when they will be reviewed. It is also unfortunate that this type of trust will be ineligible as a qualifying Pep or Isa investment.”
Woodward says: “The capped property price limits on the scheme will restrict the type of property in which the fund can invest in. Therefore they will have to invest in areas where property prices are low and rents are quite high.”
Moving on to the investment philosophy, Briggs says: “I approve of the investment philosophy. I have seen great returns from buy to let investments and continue to recommend such schemes as an adjunct to pension planning.”
Vaughn says: “The investment philosophy appears to be well thought out and the general approach of purchasing property outside London, ie Liverpool, Nottingham, Newcastle etc, should ensure low average expenditure per property, but with relatively high rental incomes ratios. I feel that the income shares have a greater chance of success than the capital shares.”
Woodward says: “For investors who understand the risk profile of the type of company and the risks associated with the different classes of shares, the investment philosophy looks interesting.”
Looking at the reputation of Williams de Broe, Briggs regards it as highly respected, while Vaughn says: “It is a well respected firm of stockbrokers with experience of putting together similar schemes in the past.”
Burke says: “It is a first rate stockbroking firm which is extremely active in bringing new businesses to both the alternative investment market and the official list of traded companies on the London stock exchange. Most recently, advisers and investors may have seen its name in association with several of the recent venture capital trust offerings, such the Matrix Securities Trivest VCT.”
Woodward adds: “Williams de Broe has a good name, although I feel that it would not be widely recognised by the average retail investor.”
Examining the product literature provided by Williams de Broe, Burke says: “As all new issue prospectuses have to follow a set formula, and therefore the contents are preordained, there is little room for marketing flair. I do however think that the authors should be congratulated on imparting the information about the company and the key information in plain english, rather than in technical jargon.”
Briggs says: “The product literature is not that user-friendly but this is a fairly complex product. However I would have liked to have seen a separate bullet-point flyer to accompany the product and provide information in an easy to read format.”
Bob Vaughn, Partner, Ashley Vaughn Partners, Eric Woodward, Managing director, EP Ward Investment Services, Simon Burke, Managing director, Arctic Life & Pensions, Robert Briggs, Principal, Robert Briggs ACII.