Profile: F&C Commercial Property Trust (FCPT)
As a closed-ended fund, the F&C Commercial Property trust has been largely immune from these problems and this has confirmed for many that commercial property is best-managed in an investment trust structure, which does not have the same liquidity constraints.
At £1billion, this trust is a big beast in the sector, but its underlying portfolio of properties is diverse and not confined to trophy buildings. For example, in London, it holds the glamorous Cassini House in SW1, but it also holds a retail park in Solihull and business parks in Aberdeen. The management on the trust has been stable, with Richard Kirby at the helm since 2005.
For investors looking for income, this is a good option. Not only is the yield high, at 4.7%, it helps investors diversify away from income from dividends and bond interest, potentially creating more stability. Nevertheless, the capital value has also outstripped the wider sector.
James Calder, research director at City Asset Management, has been buying the trust recently: “We looked at this fund after the Brexit vote and have been buying it ever since. It has a good management team and limited exposure to the London office space, which we have been negative on for some time – even before Brexit. It is very large, very liquid and this is important in the commercial property area.” The discount on the trust has widened since the Brexit vote, which may make it more appealing to new investors.
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%.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.