Investing in commercial property this year is likely to make you as much money as putting your money in equities, claims the manager of one of Britain’s top-rated asset funds.
The reason most investors underestimate property funds is because they do not properly account for rental income, says Simon Evan-Cook, who co-manages the £254m, five crown-rated Premier Multi-Asset Distribution fund.
“We’re not trying to hit a six, but you’re going to make a fairly similar return from UK equities as you are from commercial property factoring in rental income,” he said. “But the risk-to-reward ratio is firmly in the investors’ favour with property, which cannot be said of equities.
“As asset managers we are generally quite glacial in our approach, but we’ve got heavily into commercial property over the last six months from previously holding no open-ended direct property funds whatsoever,” explained Evan-Cook, whose fund has returned 30.64 per cent since 2011 compared with a sector average of 13.49 per cent.
“We appreciate the fact that it diversifies us away from many risks that are specific to bonds or equities, although it has its own set of risks that we naturally need to be aware of.”
More than anything investors need to be selective in their property choices. “You can’t just go and buy into the market and expect it to be great, because there are some poor quality secondary properties out there in places that will never recover,” he said. In particular, he stressed, be wary of high streets and pricey central London property.
“Like any index, you’ve got some bits that are expensive and some that look very cheap, but in the middle there is some good stuff,” said Evan-Cook. “With the UK economy looking a lot healthier, secondary property outside of London with some decent asset management in an OK shopping location is attractive. That sort of thing can add value and offer a reasonable return, but it’s not an investment where we expect we can make a 20 per cent return.”
Evan-Cook is not the only leading fund manager to go back into property recently. Henderson’s head of multi-asset, Bill McQuaker, recently admitted he was ditching bonds to buy back into property as mass intervention from central banks combined with historically low interest rates made fixed interest poor value.
But it’s not a universal sentiment. Psigma’s Tom Becket says he is staying well clear of property. “I am vehemently against the illiquidity of bricks and mortar funds and their swingeing fees,” he said. “Memories of 2007 and the gated funds loom large in my memory and I have seen little to suggest that the inherently illiquid nature of UK property funds has ameliorated.”
Open-ended commercial property funds suffered greatly during the financial crisis, he said, as capital flight took hold and managers found themselves having to give big discounts to unload bricks and mortar investments.
