Speaking on the launch of the new Thames River Real Estate Securities fund, due to take place on 8 April, Wilkinson says there is a big difference between spending money on physical property as a way of investment and investing money in real estate shares, with the later resulting in good liquidity for investors.
The fund has already been given an AA rating by S&P due to Wilkinson’s track record. It has a UCITS III structure and is able to invest long and short in stocks and indices to provide a degree of capital protection.
The Thames River Real Estate Securities fund will join a host of other similar funds. Data from Financial Express suggests there are 138 IMA UT and OEIC funds with exposure to property shares in their portfolios, of these 16 funds have 60 per cent or more weighted to property shares. These can be seen in the table below:
Rated by 1yr
Financial Express Analytics
A number of the above funds invest heavily in North America. When launched the Thames River fund will invest in the shares of listed companies throughout Europe. Wilkinson says he has a clear preference for core Europe such as France and Germany, as well as Sweden and Scandinavia because of their healthy economies. However he is not keen on the UK because he believes UK property shares face similar issues to those in Portugal, Ireland, Greece and Spain. Despite this he says he does have a preference for London.
“We are more confident on real estate shares in London because of its resilient position compared to other cities and other time periods.”
Looking at the volatility of the 16 funds showed a large variation in numbers ranging between14.81 per cent and 27.38 per cent in the 12 months to the end of March 2010.
Spread of performance
Wilkinson says he expects volatility in real estate equities, and all equities markets, to remain elevated over the next 6-12 months, but says the fund is well placed to be able to take advantage of this volatility by actively managing its gross and net exposure.
“Relative value opportunities will continually appear and disappear and those fund managers who are able to be active will be able to take advantage of those opportunities,” he says.
Wilkinson says investors tend to believe that volatility is high in real estate equities and therefore have a preference for physical property; however he says this is a misconception.
“People try and compare volatility between the Investment Property Databank indices and real estate equity indices. This is clearly comparing apples with pears,” he says.
“Firstly, listed real estate companies are geared, whereas the IPD indices reflect ungeared returns. Secondly, the IPD data series is a valuation based series whereas real estate equity indices, such as those produced by EPRA, are based on transactions in the market.”
However advisers remain unconvinced, Martin Bamford, director at Informed Choice, says when it comes to investing in property his company tends to look at two characteristics; firstly, that it is UK based and, secondly, that it is conventional property such as bricks and mortar.
“The reason for that is because we are trying to get this correlation behaviour between property and the rest of the portfolio. If you go for property securities this tends to be overseas and they also seem to be far more volatile and they act more like shares which we already have in the portfolio,” Bamford explains.
“There is also risk of overexposure, so if we are allocating to the FTSE All Share for example parts of those indices will already be investing in land and property security companies, so again there is a risk with property securities that you could be getting double exposure.”