Property-focused Funds of Funds, which invest heavily in listed Property Unit Trusts (PUTs) and other listed property vehicles such as Property Loan Stocks, are enormously popular with individual and institutional investors alike, with inflows of over R2,4-billion in new investment in the three months from June 2005.  

“Superior performance in the listed property sector, including that of PUTs, has continued to underpin the strong demand for listed property investment,” says James Templeton, marketing spokesperson for the Association of Property Unit Trusts, “and this performance has had a healthy balance of strong capital appreciation and above-average income distribution.”

Listed property’s standing as an investment class is substantiated in the ACI performance statistics for the past year.  Of the 466 funds registered, property funds accounted for 10 of the top 50 performers, significantly more than any other industry sector. 

“And this performance is not a one-time event,” says Templeton.  “The Real Estate General Funds have delivered compound one, two and three year returns of 56%, 43% and 35% respectively.”

It is not surprisingly, then, that investor numbers have also shown a steady increase, up 57% to 24,000, with an average sum of R580,000 invested.

This strong demand has seen three newcomers join the Property Fund of Funds fold since January 2005; the Dynamic Wealth Property Fund and Valugro Property Portfolio, valued at R191-million and R25-million respectively, and the R800-million SIS Property Equity Fund, targeting institutional investors. 

Templeton says that investors have two choices to gain exposure to listed property - either directly into the PUTs themselves or into the Funds of Funds. Investing directly requires a greater understanding of the market as a whole, with the individual counters and weightings determined by the investor in conjunction with their stockbroker. This is the lower cost alternative.

The advantage of investing in property-focused Funds of Funds is that it does not require in-depth knowledge of the property market. The funds are actively managed by a team of property experts, who stockpick on the investors’ behalf.

In addition, the funds control risk through diversification and investment in a number of listed property entities. Risk is further reduced through the introduction of an element of cash or short dated money market instruments to protect income and capital during times of property weakness.

Investors in Funds of Funds purchase units through a unit trust management company, and can structure payment through affordable means such as monthly debit orders or a minimum lump sum of a few thousand Rands.

A small individual investment becomes part of a substantial investment pool and benefits from the exposure that such a fund enjoys, by virtue of its size and the attention that is devoted to the management of the assets within that single fund.