This week Market Watch reported that property expert Simon Morris took the time to explain the safe approach to investing in property funds.
Invesco’s Demise was a One Off
The publication went on to report that “analysts described the Invesco trust’s demise as a one off.” As a London-based property expert, who acts in an advisory capacity to UK property investment funds, Morris felt the need to weigh in, to explain why analysts described the event as a ‘one off.’
What Happened to the Invesco Fund?
Simon started off by detailing what happened to the Invesco Fund. Simon explained: “Property Funds that are highly leveraged, tend to have high levels of borrowing, be that in mortgages or in shares based on borrowing.”
“Fund or Asset Managers need to have strict guidelines, in terms of how they manage investment capital. If there is no fixed return to achieve or initial capital to protect, Fund Managers are able to take higher risks.
“It’s very important to choose an investment with good liquidity, without this important factor there may be no spare cash to re-invest, which is what had happened to the Invesco Fund.”
The Safe Approach to Property Fund Investment
The property specialist went on to outline the safe approach to property fund investment. There are steps you need to take, including:
- Making sure that the fund in question is regulated by the FSA
- Checking the liquidity and gearing of the fund before any investment is made. Remember ask, what is the borrowing vs. asset ratio?
- Asking questions over the type of properties that the fund invests in, their locations, who is in charge of managing the fund, and how their investment decisions are being monitored.
Morris went on to advise that: “For investors looking for fixed return, there are products such as fixed rate bonds that are much safer investments. Initial capital is safe-guarded, the bond is securitised and returns are guaranteed.”
Property is Still a Good Long Term Investment
What Simon Morris was trying to explain here, is that property is still valued as a good long-term investment. However, you only stand to benefit from this type of investment, by choosing a fund that performs well consistently, and most importantly, is managed effectively. Considering the Invesco Fund was neither, it’s no wonder it went under.