What’s the REIT way to invest in commerical property?

As the UK prepares for Real Estate Investment Trusts (“REITs”) to arrive in early 2007, Fidelity International, the UK’s largest mutual fund manager, outlines five reasons why indirect investment through a mutual fund might be one of the best ways for private investors to gain access to REITS.

Spread the risk: A REIT is effectively a company or stock, and therefore carries the same stock specific risk that any other listed company does. Investing in a mutual fund that invests in REITs means that not only is the investment spread across a number of different REITs perhaps owning different types of property, but it can also be spread across countries too – for example, Fidelity’s Global Property Fund invests in REITS around the world.

Diversification: There is a low correlation between the performance of one regional commercial property market and another – prices in Japan are not automatically accompanied by rising prices in Europe, equally the price of the retail sector may be falling while the office sector is moving in the opposite direction. So choosing a mutual fund that invests in REITs provides additional levels of diversification for an investor’s portfolio.

Benefit from the knowledge and reach of experts: There are lots of investment opportunities to take advantage of – over 20 countries already have REITs in place or are proposing to introduce REIT-like structures. However, there are many obstacles that can stop an investor from benefiting – time and knowledge as well as rules and regulations. Choosing a mutual fund over direct investment into a REIT means the hassle is taken out of investing.

Tax-efficient wrappers: As with other mutual funds, investors can benefit from a range of tax-efficient wrappers for their investment, such as the ISA, SIPP and Investment Bond. Mutual funds can be held in those wrappers alongside other funds.

Flexible ways of investing: Mutual funds give investors the option of how they invest – via a monthly saving plan for as little as £50 per month, by lump sum or phasing.

Richard Wastcoat, UK Managing Director of Fidelity International comments: “The arrival of REITs in the UK has been much anticipated – it is a significant development for the global REITs market.

“One way for investors to enjoy the benefits of REITs, while at the same time spreading risk, is to consider investing indirectly via a mutual fund. Moreover, some mutual funds that invest in REITS invest globally, therefore giving the investor a double benefit of reduced risk and diversification.

Wastcoat concludes: “For investors who are hungry for exposure to commercial property, a mutual fund is a hassle-free way to benefit, particularly for those with only modest sums to invest or no appetite for borrowing.”

REITs have been available in the US since 1960 and over 20 countries already have or are proposing to introduce REIT-like structures, including the UK and Germany. Listed on stock exchanges, REITs are a tax-efficient means of gaining a diversified exposure to commercial property. Fidelity estimates that the value of the Global REITs market will grow by about 10 per cent each year to exceed $1.3 trillion in the next five years.

The Fidelity Global Property Fund

REITs form the core of Fidelity’s Global Property Fund. It carries an initial charge of 3.5 per cent and an annual management fee of 1.5 per cent. It qualifies for inclusion in an Individual Savings Account (ISA), Self-invested Personal Pension (SIPP) and an Investment Bond.