With so many positive views on the asset class from the fund manufacturing side of the industry, the question then arises as to what extent fund selectors look to property.
One clue is in the phrase ‘fund selection’: many of the best property deals are about owning physical bricks and mortar which poses particular challenges to funds; for example, certain investors require minimum liquidity levels.
Responses from selectors suggest that despite the proven returns, this is not a straightforward asset class to consider.
Bruno Veillet-Lavallée (pictured), head of Multimanagement Investment Solutions and senior analyst at Amundi says that he does invest in property, but that it is done indirectly.
“We do, through active funds investing into real estate related securities, which means indirect. Direct investment is not under our coverage and is under the responsibility of our subsidiary Amundi Real Estate.”
“Our coverage includes only Ucits funds. For non Ucits funds we build our solutions with the support of Amundi Real Estate.” Veillet-Lavallée adds that for him mproperty is an area to tackle via actively managed funds, rather than through ETFs of index funds.
Paulo Gonçalves, manager of the Financial Assets team at Banco Popular in Lisbon, is another who is invested in property via funds.
“Most of the real estate funds that Source BlackRock we have in our portfolios have direct exposure to the properties and the vast majority of their investments are commercial and only a very small proportion of their assets are residential.”
In turn, most of these investments are in open ended funds “because of the requirements of liquidity from our clients, but we have also invested in the past in some closed ended funds.”
“We have also some real estate funds of funds in our portfolios but it is a small proportion of our investment in real estate funds, because the funds of funds that we own are closed ended and that is a problem for us due to the above mentioned requirements of liquidity from our clients.”
Passively managed funds are also something to consider, Gonçalves says, but as an investor he is aware that they tend to consist of investments in real estate equities and not direct property investments.
“There are several ETFs that we can consider for accessing exposure to property. iShares have several ETFs
with different regional exposures.
“Besides the global ones they have US, Canada, Europe/UK and Asia property ETFs that we can use when we have a strong view in regional terms about the evolution of real estate equities. In addition to the iShares ETFs we can also consider the investment in the 3 db X-trackers linked to FTSE EPRA/NAREIT indexes.”
The attraction of property is such that Belén Blanco, head of Quality Funds at BBVA, notes that her organisation has moved to build expertise in this area.
“In our view, real estate is an asset that can provide an additional source of value to investment portfolios both in terms of yield and diversification but it requires a high specialisation.
“That is why, although we had already some experience in selecting real estate funds, some months ago we decided to strengthen that team incorporating an analysts who just focuses on property, who is in charge of widening our list of recommended products in that area, as well as closely following what we have already selected.”
“In fact, taking into account the actual market conditions and our clients’ demands, one of our main targets for the next months is going forward with a continuous process of looking for new investment opportunities in that area.”
“As far as the investment vehicle is concerned, our activity is focus exclusively in funds. Direct investment in real estate can involve spending enormous amounts of capital and is therefore suitable only for investors who have sufficient disposable resources.”
As to the type of vehicle, Blanco notes that BBVA offers access to both active and passive funds, depending on investor requirements.
Passive property funds can offer quick fire allocation to the asset class, but for a more precise strategy, an active fund may be better, although active funds may require lock up periods, high initial investments, and raise questions about liquidity.
The liquidity issues mentioned are also cited by Andreas Bichler, managing partner Mars Asset Management,Bad Homburg, when he notes that he does not have exposure to property via funds.