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Holly Black weighs up the pros and cons of open- and closed-ended
property funds – but finds one type of vehicle has all the chips
stacked in its favour
P
ANIC IN THE
MARKETS AFTER
THE EU
REFERENDUM
brought the risks of
property investing into sharp focus.
While investment companies saw
their share prices fall and discounts
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widen, open-ended funds locked
their doors and suspended trading.
As a result, many investors are
questioning whether open-ended
funds represent the best way to
invest in property.
“Open-ended property funds
should be a thing of the past,” says
Caroline Shaw, head of fund & asset
management at Courtiers. “They
are not fit for purpose; investors
have the illusion of liquidity until it
evaporates when they need it most.”
“A closed-ended structure is far
more appropriate: it means the
manager can invest all of his assets
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without worrying about flows in
and out of the fund, and can do his
job with a long-term view.”
IN BLACK AND WHITE
Performance figures are supportive
of the case for investing in property
using the closed-ended structure.
The average AIC Direct Property
UK trust has returned 86.13 per
cent over the past five years, while
the typical open-ended IA Property
fund has returned 49.03 per cent
over the same period. Over one
year, closed-ended trusts have
returned an average of 21.15 per
cent, while open-ended funds have
returned just 6.72 per cent.
Part of the reason for this is the
large amount of money open-ended
funds often hold in cash to meet
redemptions; this can be as much
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Some experts
are warning the
spoils for the
sector may not
be so rich in the
future as they
have been in the
recent past
as 25 per cent of total assets, which
cannot be put to work.
Ian Sayers, chief executive of
the Association of Investment
Companies, says this is
particularly relevant for income-
seekers as such balances will
earn very low returns, whereas
investment companies’ ability to
remain fully invested can help to
deliver a higher yield.
SLIM PICKINGS
Regardless of which type of fund
investors choose to back, however,
some experts are warning the
spoils for the sector may not be so
rich in the future as they have been
in the recent past.
“After such strong growth over
the past few years, investors may
need to lower their expectations,”
says Nathan Sweeney, senior
investment manager at Architas.
“I expect capital growth to slow
dramatically, so investors should
focus on the income they can get
from these investments instead.”
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