Neil Main, Director: Absa Mortgage Fund Managers; Chairman: Association of Participation Mortgage Scheme Managers in SA. 

Property unit trusts and participation mortgage bonds meet different needs and cannot be compared directly     
 
Your article on participation bonds (FM Focus February 6) cannot go unchallenged. In it, John Ranier, MD of Allan Gray Properties, is quoted as saying: "While a property unit trust investor receives income and capital appreciation of underlying properties, a participation mortgage bond investor receives only income." This is true, but Ranier omits to point out that investors in PUTs also suffer capital depreciation when interest rates are rising and the capital values of shares and property units are falling. 

The point at issue is not which has been the better investment, PUTs or participation bonds. They meet different needs and cannot be compared directly. Participation bonds are for investors seeking a monthly income with no fluctuation in capital value.

These investors, mainly retired people, cannot afford to put their capital at risk. Also, the income on their investments is part of their pension income so the monthly income on participation bonds suits their needs. PUTs pay income less frequently.  Contrary to the impression given in the article, participation bonds as an investment vehicle are not "fading into obscurity".

Absa's participation bond scheme, recently renamed the Absa Participation Bond Fund , has more than doubled over the past eight years and continues to grow.  Investors in our fund are not locked in for five years. They may transfer their investments at any time within the initial five years at a fee of 2% (if the management company, Absa Mortgage Fund Managers, facilitates the transfer).

Taking into account the fact that there is no entry charge, this fee is competitive. Repayments after five years are free of charge. 

PUTs have been among the best investments in recent years and it is not my intention to decry their merits.

However, the nature of the investment and the investor profiles are different from those of participation bonds. 

It may also interest you to know that two of the largest financial institutions in SA will soon relaunch their participation bond products. The product is not fading into obscurity. It is alive and well and still meeting a specific need in the SA investment universe.