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Property fund confusion: Investment Trust or Unit Trust?

Posted by: Brian Dennehy

 

Thinking of investing in a commercial property fund?  Then you’ve probably come up against the Investment Trust (IT) vs. Unit Trust (UT) dilemma.  Both have their merits but both are different, so it depends on what you want, as we try to explain. 

What do you want?

Crudely, investment trusts behave more like stock market investments.  If you are content to invest into bricks and mortar property via an investment vehicle (an investment trust), which is even more volatile than the stock market as a whole, then something like F&C Commercial PropertyAnalysis Save to my funds Add to basket is for you.  

For example, after the Brexit vote it is well publicized that the property unit trust process were “adjusted” downwards – by 6% in the case of the Threadneedle UK PropertyAnalysis Save to my funds Add to basket unit trust.  In contrast this F&C fund fell by more than 25% - just be sure you are comfortable with this level of volatility.

If on the other hand you want a stable capital value over long periods, where you are simply looking for a reliable return a margin over deposit rates, you should buy a bricks and mortar unit trust, such as the Threadneedle UK PropertyAnalysis Save to my funds Add to basket fund (yield 4.5%)

These features are highlighted in the chart at the end – the unit trust is low volatility and the other is high volatility. The higher volatility holds out the promise of higher returns.

ACTION FOR INVESTORS

  • If you’re looking for a less volatile investment that still offers some income above that available from a building society, property unit trusts are a good option.  
  • In contrast, if you're looking at taking on some more risk for greater potential return, Investment Trusts may work well.

FURTHER READING

 

Chart 1: Property investment trusts, unit trusts and the FTSE 100

Topic: Fund analysis


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