Property, and whether or not to invest in it at the moment, is a difficult call. 
Thinking aloud, it has many diversification benefits, provides a yield and is better value than a lot of other asset classes. The consensus is that a recession – a global one at least – is unlikely in 2019, but the consensus is also that we are late-cycle. Couple this with a healthy dose of who-knows-what when it comes to a Brexit outcome, and I find myself back at square one: undecided.
For investors who already hold a property investment, I wouldn’t suggest they sell. But I wouldn’t necessarily be putting my whole ISA allowance in the asset class in the next few months either. What I may find myself doing is buying on any weakness in the market though – and there is likely to be plenty of this in the coming year.
But how and where to invest?
Luckily there are a few very different options available, depending on risk appetite and preferences. Here are four for consideration.
TM Home Investor
Residential property offers a very strong element of diversification within a portfolio. It acts differently to other mainstream asset classes including commercial property, and tends to be very resilient across cycles: ultimately, people need a home in which to live.
TM Home Investor is the only fund in the UK that invests solely in private rented sector housing. The managers buy and let mainstream properties across the UK, taking a view on the economic conditions nationally and regionally in order to identify areas of the country offering the best risk/return profile and specifically for areas with good private sector employment from which they can draw their tenants.
They don’t invest in prime, affordable or social housing, and also avoid student property and care homes. Their typical properties are instead two or three-bedroom homes: terraced, semi-detached or flats on low-rise buildings.
Time:Commercial Freehold
This is a commercial property fund but is slightly different to its peers in that it acquires commercial freehold ground rents (typically 60-years plus) and commercial freehold property, which it also lets for long periods (15-40 years). The long leases provide a stable back drop and the fund has very low volatility.
Tenants are normally responsible for all the property-related costs during their occupation. The void rate is currently 1 per cent, 79 per cent of rents are reviewed every five years with the remainder mainly annually, and 79 per cent of the portfolio is linked to RPI (retail prices index inflation) and a further 7 per cent to CPI (consumer prices index inflation). The yield is 4.25 per cent and, importantly for some, it didn’t have to gate in 2016.
Premier Pan European Property Share
If direct property isn’t for you, this fund invests in the shares of property companies across Europe. It currently has about one-third of the portfolio in German listed companies, one-third in the UK and 14 per cent in France.
The manager, Alex Ross, is incredibly knowledgeable about his sector. His universe is the approximately 150 listed property stocks spread across diverse geographic regions of Europe and its real estate sub-sectors. Ross looks for the highest quality companies that actively manage their real estate portfolios – ones that can improve and enhance their properties, moving them up the quality scale.
Being pan European, the fund provides a good level of diversification for investors and, as the companies in which Ross invests are naturally income generative, it yields some 4 per cent.
TR Property Investment Trust
If you prefer an investment trust structure this trust is an option. Technically, it can invest in the shares of property companies of all sizes, anywhere in the world. But in practice, the focus is typically pan-European. It will also have a small amount invested in physical property in the UK (currently 8 per cent).
Its manager looks for well-run businesses in sectors including retail, office, residential and industrial property. He analyses how economic policies will affect property as an asset and individual property companies. He then makes full use of all the members of his team to ensure every investment opportunity receives in-depth attention.
Discount/premium over 5yrs
Source: FE Analytics
The trust currently yields around 3.4 per cent and is trading on a 6 per cent discount to NAV. It has been as low as a 20 per cent discount after the EU referendum and global financial crisis, but has also traded on a small premium at times in the past decade – including early 2018.
Darius McDermott is managing director of FundCalibre. The views expressed above are his own and should not be taken as investment advice.