Where to invest in 2015: property
In retrospect, if 2013 was the party, 2014 was something more akin to a hangover for UK investors.
Indeed, as the Christmas decorations come down and the fuzzy heads from New Year's Eve clear, many Brits will be wondering how they can make their cash work better for them in 2015 than perhaps it has done in the previous 12 months.
To put it in context, while 2013 witnessed the UK's FTSE 100 index soar by 19%, by late-November last year, following some steep ups and downs, the UK's blue-chip index had limped ahead by just 3%.
But ultimately investing should never be considered in terms of a discrete 12-month period. After all, over three years, Britain's blue-chip index is up by a more than respectable 45% – far beyond what any savings account has offered.
Looking ahead into 2015, there will undoubtedly be opportunities but simultaneously there is no shortage of challenges.
The UK has a general election to get through, the eurozone is struggling with its own economic engine and geopolitical issues still engulf the Middle East as well as Eastern Europe in the form of the Russia/ Ukraine conflict, all of which have the potential to weigh on markets. In addition, there is the looming prospect of higher interest rates.
But sensible investing is about diversification and looking longer term. So we've asked the experts for their views on the future for property, as well as their suggestions for what you might consider putting in your stocks and shares Isa.
Arguably, commercial property funds have been the stand-out investment of the past couple of years. Looking forward, experts remain pretty upbeat on their prospects. While Lowcock generally expect returns to stabilise in 2015, having risen significantly in 2014, he still anticipates that "investors could expect as much as a 10% return between growth and income in 2015".
But despite being back in vogue, these investment vehicles have a highly controversial history after enduring a horrendous period during the financial crisis. In the two years running up to July 2009, commercial property values had plummeted by more than 44%, according to the IPD UK Monthly index – the steepest decline it had endured since its records began.
But in 2014 they were consistently one of the top-selling fund types among retail investors. They come in two guises: portfolios that invest in the shares of property firms, which essentially are an equity play on the market; and those that invest directly in bricks and mortar. It is the latter type that has once again caught investors' attention.
The attraction of investing in commercial property funds, aside from the fact it adds another layer of diversification alongside bonds and shares, is that it provides investors with the opportunity to spread their cash over a broad variety of buildings, including offices, retail parks and even student accommodation. The rents paid by tenants can provide a stable and rising income stream.
This unique selling point has not been ignored by the UK's yield-hungry investors, where in many cases these funds are generating an income of more than 3%, as well as some decent capital growth driven by the UK's better economic backdrop, a factor commercial property is very much linked to.
Over the past three years, the typical fund has achieved a total return of 37% and Willis, like Lowcock, has high hopes for these funds going forward, noting that "many property managers are predicting double-digit returns from the asset class this year".
McDermott, too, expects a positive return from property in 2015. He says: "Overall I think the next 12 to 18 months will be good, after which it might be a little bit more dull and move into a much more income-driven return."
Property fund tips
Like many of his peers, Patrick Connolly has a preference to bricks and mortar, and rates the Legal & General Property fund, which has delivered a total return of 24% over the past three years. For his part, Ben Willis tips M&G Property Portfolio.
One of the bigger funds in the sector at £3.6 billion, it invests across, among others, offices and retail warehouses and has achieved 20% return over the past three years.
Both Adrian Lowcock and Ben Willis back the Threadneedle UK Property fund, which is up by 16%. Lowcock says: "It is a flexible fund with a focus on income where the majority of returns are made. Investments are made with a view for capital growth, too."
Darius McDermott highlights the Henderson UK Property fund, which is up by 24% over the past three years. With a preference for prime assets, in 2014 the fund purchased the London headquarters of 'Queen's bank' Coutts.
Download the free Moneywise guide to investing in property here, which gives further information on investment options as well as highlighting some of the issues that come with these.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.