It has always been difficult to argue against the “balanced portfolio” logic of traditional investment wisdom: equities for growth and performance; bonds for income; and property for stability and security.  But even tradition has to be checked against the facts every once in a while.

Over the past five years, listed property investment, and Property Unit Trusts (PUTs) in particular, have consistently out-performed the equity markets, delivered more income than the bonds, and at the same time entrenched their stable and secure status.

“While enjoying the convenience and liquidity of the listed equity markets, PUTs remain, fundamentally, a pure property investment,” says James Templeton, spokesperson for the Association of Property Unit Trusts.

“The enormous investor interest in the sector,” he adds, “is largely because we’re experiencing the strongest real growth from listed property in more than two decades, and this growth remains underpinned by strong property and economic fundamentals.”

Leon Allison, Property analyst at First South Securities, says there is a particularly interesting relationship between PUT yields and the bond market.

“PUTs distribute all their income pre-tax, and this makes them a high-yielding instrument, much like a bond. Historically, the market has used the yield gap (the difference between a PUT’s historic dividend yield and the bond’s trading yield) as an indication of whether the PUTs were expensive relative to bonds,” says Allison.

Market wisdom has traditionally attached a risk premium to PUTs, largely due to the fact that bonds are government-guaranteed and have greater liquidity.  On the flip side, PUTs enjoy earnings growth, while a bond’s distributions are static.  Numerically, these factors largely cancel each other out, and the difference that remains, between this perceived risk and the forecast growth, is the yield gap.

“The higher the expected growth, the lower the yield relative to bonds,” says Allison, “and since 2000 we’ve found that PUTs needed growth forecasts of 7% to 8% to maintain parity with bond yields.”

“In late October,“ he adds, ”the PUT yield dipped below the bond yield for the first time in many years, essentially reflecting the market’s confidence in both the security of the asset class and the superior income growth potential.”

“Given the strong fundamentals, there is less focus on risk in the current market, and more on growth.  For the 12 months going forward, we expect a total return of around 11% for listed property, against single-digit returns from bonds,”  says Allison.

“This should keep the listed property yields well-rated,” he says, “particularly within the PUT sector where the risk is generally seen as being lower due to the sector’s tight regulation, capped gearing and greater certainty regarding tax.”

The PUTs, it would seem, haven’t heard the traditional wisdom that property investment is meant to be pedestrian and boring.