From time to time we like to share some of the information we hold about one of the funds within our client portfolios. As part of our ‘fund in the spotlight’ series, we have focused on a Property fund for a change.
After speaking with Eoghan Gill – our Legal and General (L&G) consultant about the L&G UK property fund, we discovered some interesting facts which we felt would be relevant to share with our clients.
This fund is contained within our mainstream level one, two, three and four benchmarks, meaning that a large majority of our clients hold this fund within their portfolios. These clients will be delighted to know that the fund has performed well during a difficult and uncertain year.
The property sector as a whole is up 2.7%* on the year while the L&G UK property fund is up 8.4%* over the same time frame. This fund has performed well against its sector over time and continues to be a top quartile fund (*source Investment Week)
The L&G UK property funds’ main objective is to provide a combination of income and growth through investing mainly in commercial property. The asset allocation has been carefully considered to achieve this goal which includes 70% direct property, 22% cash, 6% Real Estate Investment Trusts (REITs) and 1% derivatives.
The fund has recently reduced its’ cash reserves to 21% and increased the direct property asset value to 72%* (*source trustnet) which Eoghan explained was due to property markets looking calmer.
During 2017, a fall in sterling actually had a positive effect on this fund as more foreign investment came to the UK. The fund holds a large cash reserve. This provides the fund with some liquidity – should investors want to remove their money during times of uncertainty which the UK has previously witnessed. It also dampens volatility which helps our overall client portfolios.
The fund managers (Michael Barrie and Matt Jarvis) currently have a negative outlook for high street retail property. More people are shopping online which ultimately reduces high street footfall.
However, the fund continues to invest in ‘out of town’ retail shopping centres as shoppers are more inclined to visit these arenas due to additional facilities such as coffee shops, toilets and play areas for their children.
Interestingly the fund has recently increased its investment in alternative property such as student housing. Eoghan explained that this has historically been a reliable investment. Student property provides a consistent flow of rental income whilst having secure rental agreements due to university funding backed by the government. The decline in sterling has again had a positive effect, as more overseas students have been able to afford to stay and study in the UK.
Eoghan explained how additional investment into elderly care homes is also underway. Demographic changes and an aging population means that more elderly people require residential/nursing care. This type of property can be a very useful investment within a property fund.
The outlook remains positive for this fund as Eoghan states it is on target to return around 4.4% per year from 2018-2022. This is encouraging as a consensus forecast predicts that the property sector as a whole will only have a 3.3% total return over the same period.
As always, we are delighted to share information and discuss funds with our clients. You should bear in mind that investments carry varying degrees of risk and as their underlying value can fall as well as rise, you may not get back the full amounted invested. In rare circumstances property funds can delay paying out proceeds upon an encashment request. This delay can be whilst properties are sold – if a large amount of fund holders requested proceeds all at the same time.
If there is anything further you would like to know, please don’t hesitate to contact us and we will be happy to help.
My very best wishes,
This article does not constitute financial advice and is not a promotion for a fund. It has been written for our existing clients and any decision to purchase a fund must only be taken after receiving regulated independent financial advice.