Property funds

Property funds invest into commercial property, such as industrial property, warehouse buildings, shopping units and office blocks. As an asset class, property performs differently to both equities and bonds and should be considered as part of any balanced portfolio as it improves diversification. 

Commercial property should not be confused with residential property, as they are two distinct categories. Residential property is subject to emotional issues, with recent values substantially rising by more than rental incomes and, as such, residential properties are now looking highly priced. On the other hand, commercial property is based on its ability to generate rental income and these rental incomes are protected by upward only reviews.

Due to the recent popularity of commercial property funds many currently hold large amounts of cash. Over the short term this is not uncommon as it indicates that the fund managers, rather than buying the first property they see, are assessing the present commercial properties on the market before making suitable investments. Also, as these funds invest in property and land, they can take some time to encash so cash is therefore needed for liquidity reasons.

However, investors need to be wary of property funds that hold large amounts of cash for long periods. Indeed, some property funds are now limiting the amount that can be invested because they want to maintain performance and a high cash weighting could affect the fund’s returns.

Property funds

These funds invest in property and land. This can be difficult to sell, so you may not be able to sell your investment when you want to. This may lead to a delay in the investment company acting on your instructions to sell. The value of a property is generally a matter of a valuer‘s opinion rather than fact.