Trustnet Magazine Issue 31 July 2017 | Page 18

YOUR PORTFOLIO / PROPERTY TRUSTS / NO CONTEST 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 16 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 trustnetdirect.com 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 trustnetdirect.com 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.” 17