If you’re looking to diversify your investment portfolio, managed investment funds may be what you’re after. However, there are hundreds available in Australia and internationally, which can make choosing one an overwhelming process
Purchasing an investment property can be time consuming, while owning and managing it can be stressful. However, there is a way you can enjoy the financial rewards of property investing without enduring the constraints that often come with it. Property related managed funds are a great way of spreading your capital over a broader market. However, there are many to choose from and investors need to be mindful in choosing a fund that suits their investment needs. These trusts are divided up into three main categories: property trusts, property securities and hybrid property funds.
A property trust is where money invested is pooled together from a group of investors and used to directly invest in property, which can be either residential, commercial or both. This is different from a property security fund, which invests in other listed or unlisted property funds. Director of the Australian Finance Group (AFG) Ross Naylor says that a managed property fund is a good way to invest in a variety of different properties at once without necessarily outlaying a large sum of capital.
“You don’t need a great deal of capital to get started, as little as $5,000, and that money is spread across a range of investments, which can make it less risky,” he says.
Naylor says another benefit of a managed property fund is that the invested capital is more obtainable. “Depending on the managed fund, the money can be drawn out within days or less, whereas converting an investment property into cash takes a much longer time. A managed property fund has greater liquidity,” he says.
Property funds can be either listed on the Australian stock exchange or unlisted. Overseas listed property funds are known as Real Estate Investment Trusts (REIT). However, the ASX says there’s a plan to change the Australian version from Listed Property Trusts (LPT) to A-REIT during the course of 2007.
According to the ASX, LPTs make up 12% of the world’s listed real estate, making it one of the largest sectors on the stock market.
Anton Lawrence is director of Managed Investment Assessments (MIA), a firm which researches and rates managed property funds based on a number of criteria. Lawrence says that investors need to choose a managed fund based on their investment goal.
“There’s no one ‘good’ fund. The choice depends on the desired outcome of the investor. Different people approach risk differently,” he says.
Lawrence also advises investors to treat managed property funds as a longer term investment.
“You can’t keep your money in a managed property fund for six months and then sell like you could in the stock market. Managed property funds are long-term funds,” he says.
According to Lawrence, one type of fund that has become particularly popular with investors in recent times is a hybrid property fund where investors’ money is placed directly into property, as well as into listed and unlisted property trust funds.
MIA research says that the industry has grown substantially from $1.24bn at 31 December, 2004 to $6.06bn at 31 December 2006.
“Hybrid by definition means a mixture, and investors are now getting the best of all the worlds,” Lawrence says. “Historically, the hybrid property funds aim to maintain an asset allocation of 50% to direct property and 50% to listed property securities. As such, the hybrid fund, as its name suggests, fills the void between its two constituent parts and offers significant diversification.”
Lawrence says there are literally tens of thousands of investors in the property investment fund market in Australia and says the range of investors is not just limited to the ‘expert’ investor.
“Many people seek the help of a financial advisor if they want to invest in a managed property investment fund. But it’s important to keep in mind your financial goal when choosing your fund,” he says.
Alternatively, Lawrence says investors can make their own decision based on extensive research done by companies such as MIA.
If you’re serious about investing in any property related fund, it’s clear that although it’s managed, there’s still an onus on the investor themselves to make an informed choice. If you make educated choices, managed property funds are clearly a solid investment.
CFS FC inv Deutsche Property Securities
Manager: Colonial First State Investments Limited
Fund size: $58.17m (as of 31 January 2007)
Entry price: $1.592 (as of 8 May 2007)
Exit price: $1.5857 (as of 8 May 2007)
Minimum initial investment: $5,000
Profile: This trust will mostly invest in property trusts and property securities listed on the ASX. It aims to provide income returns and long-term capital growth. The minimum suggested investment timeframe is three to five years. This trust features an automated phone service, a toll-free client service number and a 14-day cooling off period.
Macquarie Property Income Fund
Manager: Macquarie Direct Property Management Limited
Fund size: $77.73m
Entry price: $1.6495 (as of 8 May 2007)
Exit price: $1.6299 (as of 8 May 2007)
Minimum initial investment: $10,000
Profile: This fund aims to provide a relatively high after tax income by paying distributions that have a tax deferred component and aims to achieve moderate capital growth over time. Ideally an investment for the mid to long term.
UBS Property Securities Funds
Manager: UBS Asset Management (Australia) Limited
Fund size: $1760.9m (as of 31 March 2007)
Entry price: $2.453 (as of 4 May 2007)
Exit price: $2.453 (as of 4 May 2007)
Minimum initial investment: $20,000
Profile: This fund invests in listed property securities and aims to provide steady capital growth for mid to long-term investment. Its features include a toll-free call number, quarterly reports and client service number.
RREEF Paladin Property Securities Fund
Manager: Deutsche Asset Management (Australia) Limited
Fund size: $775.87m (as of 31 March 2007)
Entry price: $1.8259 (as of 8 May 2007)
Exit price: $1.8167 (as of 8 May 2007)
Minimum initial investment: $25,000
Profile: It aims to outperform the benchmark S&P/ASX 300 GICS Property Accumulation Index, before fees over rolling three-year periods. This fund aims to achieve long-term capital growth. Their suggested investment period is three to five years.