Money

Many will be looking for steady income streams to safeguard against any capital depreciation that may result from unpredictable market activity. Of the sectors currently offering good yields, property may be one of the most attractive. With average yields in the Property Direct UK sector at 6.3%, some investors may be tempted to take a look.

On the hunt for income

The hunt for income has been a major theme of 2011, with investors looking for ways to compensate for a high inflation and low interest rate environment. This has resulted in many companies which offer high dividends trading on premiums. For examplethe UK Growth & Income sectoris on a premium of nearly 2%, compared to a 9% discount for the industry as a whole. Conversely, despite some attractive yields, the property sector as a whole was on an average discount of 11%at the end of September 2011,down slightly from 12% a year ago.Jason Baggaley, Manager of Standard Life Investments Property Income said that: “In the current environment, with a relatively weak economic backdrop, ensuring the quality and sustainability of income is a key investment decision making criterion. Investors remain risk averse because of the economic volatility…however, these conditions may provide ideal stock picking opportunities for savvy investors where good value assets can be identified in relatively resilient areas.”

Positive performance from property

Performance in the property sector as a whole has just about nudged positive territory over the last volatile year, up 1%, outperforming the wider investment company universe by some 5%. Of course the sector has recovered strongly since the lows of 2008, with the property sector on average up some 54% over three years to end October 2011, compared to a wider industry average of 49%, but the five years figures are in negative territory.However, one of the longest established property investment companies, TR Property, has produced impressive returns of 286% over ten years, compared to the investment company average of 112%. It has a dividend yield of 3.9% and invests in property securities.

The closed-ended structure of an investment company is often seen by managers as a superior way to hold a portfolio of property, and this is particularly the case when investing in physical property. This is largely because the fixed number of shares means that managers are not forced to sell good stock in order to meet redemptions when markets fall. There are five AIC property sectors containing 17 companies; these invest in properties ranging from UK commercial property to redevelopment opportunities in Macau therefore giving investors exposure to a wide range of investment propositions.

It’s been a challenging five years for the property sector, but with a difficult global economic backdrop, and in the midst of a Eurozone crisis where many wealthy overseas investors may be looking for the relative reassurance of bricks and mortar, commercial property is attracting increasing amounts of interest. It will be interesting to see where discounts in the property sector are standing in another year’s time.

For more information visit the AIC’s website at http://theaic.co.uk where you can search for statistics and information on individual companies and sectors, as well as find a wealth of up-to-date market news and investment company factsheets.