What the Brexit-induced woes have highlighted is advisers should make sure what sort of investment strategy clients need when contemplating property as part of a portfolio.
For example, do clients need a daily dealing open-ended property fund or would a closed-ended property investment trust be a better option for them?
Ben Willis, head of research for Whitechurch Financial Consultants, believes clients may have been “deterred” because of the recent fund suspensions.
Others believe there is still an investment case for property. Adrian Gaspar, multi-asset investment specialist for Prudential Portfolio Management Group, says: “The UK commercial property market will likely deliver more subdued returns in comparison to recent years.
“However, commercial property is a tangible asset. Many investors like the thought of owning a physical asset with an intrinsic value and, given the UK commercial property market is well-established, it still offers a relatively attractive, transparent, liquid, deep and diverse range of opportunities.”
Reasons for investing
According to Rob Gleeson, head of research for FE, it all depends on whether the client knows why he or she is investing.
The recent issues could be a game-changer for advice on property in the future. It could even signal the end of daily dealing funds.
He says: “Open-ended property funds work best as a long-term source of income, so if clients plan to buy and hold, such funds are a good option.
“However, if they have any potential need to withdraw their money, even in the medium-term, or are looking just for capital appreciation, then perhaps indirect funds that invest in property securities, or a fund of funds could be a better bet.”
Jonathan Wilcocks, global head of retail sales at M&G, says: “Over the long-term, returns from investing in property have been attractive but as a cyclical asset class, property should only be considered for those investors with a long-term investment horizon and/or wanting to diversify a portfolio of different asset classes.”
Moreover, as Phil Clark, head of property investing at Kames Capital, says, investors do need to be aware of costs such as stamp duty (currently 5 per cent of property costs).
Daily dealing
Potential investors should be informed at the start of the process about the benefits and disadvantages of being in a daily dealing fund.
While some investors may want the option to be able to trade more frequently, this may not be the best idea for most retail clients.
Adrian Lowcock, investment director for Architas, says: “If clients are not concerned with short to medium-term liquidity, daily dealing funds will be fine, but clients should be reminded they need to be confident so they will not rush to sell in times of distress.”
Mr Gleeson agrees: “Daily dealing is no guarantee of liquidity, as at times of stress, dealing will be suspended so frequency of being able to trade becomes irrelevant.”
