Property securities funds fare will in 2006

Property securities funds fared extremely well in 2006, with the average fund delivering 37.86% - a return double that of the average bricks and mortar fund (17.9%), according to analysis by Fidelity International.

The analysis also shows that, while most directly invested property funds limit exposure primarily to the UK, property securities funds tend to be more diversified across the world with an average weighting of around 30% in the UK. Because the correlation of the world’s property markets is low, property securities funds investors benefit from greater diversification. For example, at the end of December, the UK weighting of Fidelity’s Global Property Fund was just 15.3%, with the portfolio invested in REITs and REIT-like securities across several countries, including Australia, Hong Kong, Canada, Netherlands, Singapore and Greece.

Despite the investment story around performance, diversification and liquidity offered by property securities funds being extremely compelling, in 2006 many UK investors instead opted for bricks and mortar funds. Estimated net sales over 2006 for the two are remarkably different, with inflows into bricks and mortar funds (£3.5bn) outpacing inflows into property security funds (£486m) by a long way.

Peter Hicks, Head of Adviser Channel, Fidelity International said: “While our own Global Property Fund has been very successful over the year since launch, the inflows into property securities funds in general has been disappointing compared with the huge inflows into their bricks and mortar counterparts.

“One key element in the popularity of direct property funds could have been their tangibility. People in the UK seem to feel comfortable with bricks and mortar, and that notion of security extends to the types of funds they buy.

“However, property securities funds offer benefits over and above those offered by bricks and mortar funds - a combination of enhanced diversification and performance, with the increasingly topical feature of liquidity. In addition these funds offer investors an indirect, and therefore less risky, way to invest in REITS which dominate property investment globally and are now becoming available in the UK.”

Fidelity Global Property Fund

The Fidelity Global Property Fund (SICAV), sister fund of Fidelity’s Global Property OEIC, opened for contributions from UK investors on January 16, 2006. The fund is a Luxembourg-registered SICAV with a sterling share class and qualifies for inclusion in an Individual Savings Account (ISA), Self-invested Personal Pension (SIPP) and other tax-efficient wrappers in addition to being available outside of a wrapper.

Fidelity Global Property Fund invests in property shares and Real Estate Investment Trusts (REITs) around the world. Its benchmark is the FTSE EPRA/NAREIT Global Real Estate Index. Manager Steve Buller holds around 50 and 70 stocks in the portfolio.

The Fidelity Global Property Fund (SICAV) carries a 3.5 per cent initial charge, from which advisers can take upfront commission of 3 per cent. There is also an annual management fee of 1.5 per cent, which includes an ongoing commission payment of 0.5 per cent.

Fidelity Global Property Fund Top Ten Holdings (as at 31.12.06)

Mitsubishi Estate 4.0%
Starwood Hotels & Resorts Worldwide 3.8%
Land Securities 3.3%
Equity Residential Property Trust REIT 3.2%
British Land 3.2%
Simon PPTY Group REIT 3.0%
Mitsui Fudosan 2.8%
Vornado Realty Trust 2.8%
Westfield Group Stapled Units 2.2%
Public Storage 2.2%