News Archive - July 2007
Commercial property investments
12/07/2007
Over the last couple of weeks, several insurance companies have
announced sudden cuts in the value of their commercial property funds.
These funds own property such as office buildings and shopping centres,
and their value is based on the value of the properties within them as
well as the rental income earned.
These funds have given very strong returns over the last few years, with
low volatility when compared with equity investments, so they have been
the 'flavour of the month' with many advisers. However, outflows of investments
from the funds (due to worries about the future returns from commercial
property) have forced the insurance companies to downgrade their valuations.
Does this mean that you should not invest in this type of fund? Well,
we believe that you should take a long-term view wherever possible, because
nobody can guarantee what will happen in the short-term. Without the benefit
of a crystal ball, it is a very risky strategy to continually chase the
one area which will give the best short-term returns.
Over the years, property funds have provided good long-term returns when
compared to cash. More importantly, their value does not vary directly
in line with the stock market, so they offer protection from equity market
falls.
A well-diversified portfolio with a range of non-correlating asset classes
is the best way to reduce risk over the long term. (In English, don't
put all your eggs in one basket!). There is still a place for commercial
property funds as a part of your pension and investment portfolio.