Best property funds of 2017

Whether investing in physical property or in property shares, diversification is key for this year's winners. Andrew Pitts and Holly Black look at the real estate fund champions.

Best physical property fund

L&G UK Property

1-year return: 2.4%; 3-year return: 27.4%

This is the fourth year that L&G UK Property has been named Best Physical Property fund in our awards, as well as making it on to our Rated Funds list in four of the past five years.

As well as producing steady returns it was one of the few open-ended property funds that stayed open in the aftermath of the EU referendum last June. After the surprise result of the vote, fears that the property market would crash saw many property funds suspend trading to avoid being forced into a fire-sale of their assets in the event of mass investor redemptions.

The L&G fund retains a cautious approach, with almost a quarter of its £2.7 billion assets under management held in cash and liquid assets; indeed, many funds are keeping an above-average proportion of their portfolio in liquid assets as we enter Brexit negotiations, which could bring more volatility to the market. That high cash weighting, along with a generally rocky year in the sector, has weighed on performance, though, and the fund is in the third quartile of its peer group over one and three years.

Unlike many other property funds it is well-diversified across the regions, with its strongest weighting in the Midlands, which accounts for some 16% of the portfolio; it also has 10.5% of its assets in central London and a further 10% in the South East. A quarter of its assets are office space locations and 21% is in industrial space, which the managers believe should be relatively insulated from the impact of Brexit.

In total it currently has 93 holdings and yields 3.2%.

Best property securities fund

First State Global Property Securities

1-year return: 14.8%; 3-year return: 55.5%

First State Global Property Securities has won our award for providing investors with exposure to the global property market through stocks and shares rather than through bricks and mortar property investment. The £275 million fund is a top-quarter performer over both one and three years. First launched in 2006, it has been managed by Stephen Hayes since 2012.

First State says investing in property securities rather than owning real estate is a cost-effective way to get exposure to the market, as it avoids the time and costs involved in physical investment - a particularly useful attribute at uncertain times such as in the aftermath of last year's EU referendum or during the forthcoming Brexit negotiations.

Hayes, who also manages the group's Asian Property Securities fund, re-joined First State in 2012, having previously worked at the firm from 1999 to 2006. He left to found boutique investment company Perennial Real Estate Investments in Australia, and brought several members of the Perennial team with him to First State upon his return.

The fund is spread geographically, with a little more than half of its assets in the UK, 10.1% in Australia, 8.8% in Japan and 7.9% in the UK. Almost a third of its assets are exposed to the retail sector, with a further 16.4% in residential property and 14.8% in office space. The fund is concentrated with just 37 holdings currently; the largest of these is in Simon Property Group, one of the biggest mall operators in the US, which accounts for 7.9% of the portfolio.

UK investments include Hammerson, an investment company focused on retail, and student accommodation specialist Unite Group.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise.The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.