With nearly 380 buildings and over 9,000 tenants, spread geographically across retail, industrial and office sectors, Property Unit Trusts offer the perfect diversification tool for an investment portfolio.

Conventional wisdom states that the goal of diversification is to lower the risk of an investment portfolio for a given level of return, or alternatively, to increase expected returns for a given level of risk. 

Spokesperson for the Association of Property Unit Trusts (PUTs), James Templeton, says whether you’re looking to boost returns or reduce risk, PUTs offer the perfect diversification tool for an investment portfolio.

“Diversification is the process of combining individual investments whose expected returns are not correlated. In other words, their returns are not necessarily expected to move in tandem over time. When some investments are increasing in value, other investments may be going down, thereby reducing the portfolio's volatility, the primary measure of portfolio risk,” says Templeton.

Diversification is generally achieved by spreading portfolio investments among different asset classes, having different investment objectives and characteristics. Over time, a well-diversified investment mix can be expected to outperform an investment in a single asset class, while reducing the risk of significant loss.

As a general rule, an investment portfolio should be allocated among equity stocks, property, bonds and short-term investments.

Templeton says for the man in the street, however, fixed property investment outside of their residential asset is not easily achieved. “Entry costs are high and in most cases the investment would be restricted to a single property asset and exposed to the risk of a limited tenant profile.

“For this reason, listed property instruments, such PUTs, are an essential investment avenue for individual investors,” he says.

The way they are structured, PUTs are a perfect proxy for physical property. Essentially, the PUT uses the combined resources of its many investors to accumulate and manage a diversified portfolio of income-producing properties. “They are tax-efficient and essentially pass on all the property income (after costs) to the unit-holders, just as if the unit-holders themselves were the individual owners of the buildings in question,” says Templeton.

As specialist investment vehicles PUTs are managed by full-time professionals who understand the vagaries of the property market and, having substantial capital resources, have assembled portfolios that are diversified across industry sectors, geographic spread, and importantly, tenant profile.

In the same way that diversification within an investment portfolio’s mitigates risk and optimises return, a property portfolio also benefits substantially from spreading its investment over a variety of buildings, being exposed to different industry sectors and regional economies, and having tenant risk spread over a broad base.

Ends

For further information, please contact:

James Templeton

Association of Property Unit Trusts

Tel: (011) 775 1000

Monica Meyer / Sandra Mason

Ogilvy Public Relations Worldwide / South Africa

Tel: (011) 709 9609

Date: 22 May 2006