Liz talks about why investors should consider ethical property as a way to further diversify their portfolio.
We highlighted the importance of diversification in a recent article. Whilst many people divide their money between equities (shares) and bonds, some exposure to property may also be worth considering.
In prime locations, land and buildings are often in limited supply, increasing their value. As well as 3 main sectors -retail, office, and industrial- property encompasses warehousing, social housing, care homes, medical centres, student accommodation and data centres.
Investing directly into bricks and mortar can be difficult (buying and selling takes time) so shares of listed property companies or REITs offer a quicker and more liquid route. Another way to access opportunities is via companies which provide products and services for new developments.
Many property companies have re-structured as REITs (Real Estate Investment Trusts) which have tax advantages if certain conditions are met. REITs must own income producing assets and are exempt from corporation tax as long as at least 90% of their net profit is distributed to shareholders each year. Rental business must account for at least 75% of both income and assets.
It's expected that by 2050, nearly 70% of the world's population will live in urban areas.1 Cities need considerable infrastructure and resources so energy efficient, well connected, sustainable assets will be vital.
The Big Exchange offers two thematic funds which aim to benefit from the growth of cities.
This fund has about 95% of its assets in real estate2, notably through REITs. Schroders created their own index to measure environmental, economic, innovation and transport impact. This helps identify the strongest city economies with good prospects for rental income.
The managers assess the environmental and social characteristics of individual companies, their operational practices, and the sustainability of their location. They invest in a range of sectors from data centres, self-storage, and manufactured homes to more conventional buildings. A key holding is US REIT Rexford which converts outdated, inefficient buildings into high-performing, energy-efficient and higher-value properties.
This fund adopts a broader approach, with a portfolio aligned to three investment themes: Building the city (urban development and intelligent buildings); Running the city (infrastructure and transport solutions) and Living in the city (housing solutions and urban lifestyles).
Investing in companies that deliver solutions to the challenges of urbanisation can enable the development of safer, more liveable cities. Examples include creating resource efficiency or improving healthcare provisions. A top 10 holding is Prologis which develops warehouses with environmentally friendly facilities.
So, next time you’re thinking about diversifying your investments on The Big Exchange, consider the potential benefits of investing in funds that use property as a way to access alternative revenue streams.
If you’re interested in learning more about these funds and the rest of the rated funds listed on The Big Exchange, visit our full fund list and click on the names of the fund to see our full impact assessment of each fund, the factsheet and more.
Please remember that when investing, making money is not guaranteed and your capital is at risk. The value of your fund can go down as well as up. Tax treatment depends on an individual’s circumstances and may be subject to change.
2 Fund Factsheet 28 Feb 2023
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