Property fund loses 5% due to bid/offer spread - continue?
Discussion
I have started the process of feeding my Dad’s inheritance money into a bunch of funds - mostly a selection of cheap-n-cheerful index trackers giving geographic diversity, plus a managed fund, and I also decided to put a property fund into the mix for a bit of stability.
I was disappointed to see that I was immediately about 5% down on the property fund, and it has taken a week or two for me to figure out why: the fund has a 5% bid/offer spread, which I didn’t realise at the time I chose it. I now understand the reasons for that, related to the costs of buying properties.
So now I can’t make up my mind whether to continue feeding more money into that fund, accepting that I’m effectively losing 6 to 12 months’ worth of growth before I’ve even started. The fund has historically shown good, steady growth without the volatility of equities (except for 2007 and the Brexit vote), but the bid/offer spread means you get off to a very bad start which is a bit of a shame. I’m investing for the long term, but losing 5% immediately is a real pity.
So what other factors are there with such a fund that might convince me to continue with it?
The fund is Legal & General UK Property Feeder Acc.
I was disappointed to see that I was immediately about 5% down on the property fund, and it has taken a week or two for me to figure out why: the fund has a 5% bid/offer spread, which I didn’t realise at the time I chose it. I now understand the reasons for that, related to the costs of buying properties.
So now I can’t make up my mind whether to continue feeding more money into that fund, accepting that I’m effectively losing 6 to 12 months’ worth of growth before I’ve even started. The fund has historically shown good, steady growth without the volatility of equities (except for 2007 and the Brexit vote), but the bid/offer spread means you get off to a very bad start which is a bit of a shame. I’m investing for the long term, but losing 5% immediately is a real pity.
So what other factors are there with such a fund that might convince me to continue with it?
The fund is Legal & General UK Property Feeder Acc.
Fidelity Special Situations is indeed the managed fund that I’ve chosen!
So are you saying that I can’t simply sell out of this fund in the same way as an equity fund? When selling out of equities you typically get your money within a week; would it take a lot longer with this property fund?
So are you saying that I can’t simply sell out of this fund in the same way as an equity fund? When selling out of equities you typically get your money within a week; would it take a lot longer with this property fund?
Dr Mike Oxgreen said:
Fidelity Special Situations is indeed the managed fund that I’ve chosen!
So are you saying that I can’t simply sell out of this fund in the same way as an equity fund? When selling out of equities you typically get your money within a week; would it take a lot longer with this property fund?
Potentially. All of these funds keep a certain amount of cash on hand to meet normal redemptions, but in times of market turmoil when this reserve is exhausted they either have to fire sale properties quickly to generate cash or suspend redemptions to allow a more orderly liquidation of property.So are you saying that I can’t simply sell out of this fund in the same way as an equity fund? When selling out of equities you typically get your money within a week; would it take a lot longer with this property fund?
This happened to a couple of the open-ended properties after the Brexit vote (including Aberdeen I think), one of them sold a big office building in Hammersmith to Blackstone for a song to get cash in quickly - not great for the unitholders' returns.
ETA here you go:
http://www.costar.co.uk/en/assets/news/2016/July/A...
http://www.costar.co.uk/en/assets/news/2016/July/A...
Dr Mike Oxgreen said:
So are you saying that I can’t simply sell out of this fund in the same way as an equity fund? When selling out of equities you typically get your money within a week; would it take a lot longer with this property fund?
It depends how heavily it is being sold when you want to sell - generally you'll get money quickly, but if everyone runs for the exits they'll have to sell property to generate cash. If you want to hold property, consider an Investment Trust, which you'll be able to sell regardless, but you may get a very poor value for in a property downturn.Essentially this comes down to your time horizon. for equities generally you want to be looking at at least 5 years, at which point the issue is less about the spread, it's more the expected returns isn't it?
Thanks guys!
Thinking about this from a "costs and fees" perspective, the 5% loss on entry is effectively a 5% initial charge, plus there's a 0.75% ongoing charge. That adds up to the sort of costs that are incompatible with my attitude to investing, so on that basis I won't be making any further additions to this fund.
It's a pity, because whilst the bulk of our investment is long-term (Mrs Oxgreen and I would like to retire at 60, in about 15 years' time), we would like to keep a pot of money that we can spend on holidays and other "nice things" during the next 15 years, so I'd have liked to find a way of investing that pot that gives adequate returns with less of the volatility of equities - and property seemed to fit the bill to an extent.
Thinking about this from a "costs and fees" perspective, the 5% loss on entry is effectively a 5% initial charge, plus there's a 0.75% ongoing charge. That adds up to the sort of costs that are incompatible with my attitude to investing, so on that basis I won't be making any further additions to this fund.
It's a pity, because whilst the bulk of our investment is long-term (Mrs Oxgreen and I would like to retire at 60, in about 15 years' time), we would like to keep a pot of money that we can spend on holidays and other "nice things" during the next 15 years, so I'd have liked to find a way of investing that pot that gives adequate returns with less of the volatility of equities - and property seemed to fit the bill to an extent.
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