AJ Bell funds – update to property holding


Archived article

Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

Here at AJ Bell Investments, we want our range of AJ Bell funds to offer a multi-asset approach to investing. That’s why we have kept property part of their asset allocation, despite periods of underperformance. Property offers something different within our funds, which are otherwise largely made up of bonds and shares.

Asset Class Index 5 Year Total Return
UK Shares FTSE All Share Index 15.17%
UK Property FTSE EPRA NAREIT Index (7.76%)
UK Bonds Bloomberg Barclays Sterling Aggregate Unhedged Index 34.02%

Source: Morningstar

However, the impact of Covid-19 has hit the property sector particularly hard. On top of the closure of shops, work-from-home initiatives have made companies reassess the need for office space, potentially affecting commercial rent in the future.

Because of these challenges to the sector, we have decided to move from a purely UK property fund to a globally invested property tracker fund. The UK property fund we previously used in our Cautious to Adventurous growth funds was the iShares UK Property ETF (IUKP), made up of 39 UK property companies and holding inflation-linked government bonds. We then combined this holding with inflation-linked government bonds. This allowed us to achieve a performance similar to that of physical property, as the bonds lowered some of the risk.

The more diversified global fund we have switched to is the iShares Developed Real Estate Index Fund, which holds 332 companies across 10 countries. Diversification helps to mitigate risk by reducing the focus on the fortunes of single companies, which can greatly affect performance in more concentrated investment funds. In some circumstances this concentration can be a negative factor – the administration of Intu being one recent high-profile case.

Like the previous ETF, this new index fund is provided by iShares, who have a strong track record and good industry reputation at managing passive strategies. iShares are the index tracking arm of global asset management firm BlackRock, who we have worked closely with to launch this fund.

One big advantage of the new fund is that its management fee – or Ongoing Charge Fee (OCF) – is 0.24%, a 40% saving from the previous ETF. This affects the net return of an investment after fees.

While currency fluctuations mean there are some more risks when using global investments, the new fund mitigates them with a technique called ‘hedging’. This is where the fund manager enters into a contract to remove fluctuations in the pound from the overall return.

Although in general we prefer to use ETFs, we believe the diversified mix of investments, coupled with a lower running cost of 0.24%, justifies this switch.

Old fund OCF
iShares UK Property ETF 0.40%
New fund 
iShares Developed Real Estate Index Fund 0.24%

Important information: The value of your investments can go down as well as up and you may get back less than you originally invested. These articles are for information purposes only and are not a personal recommendation or advice. If you’re unsure please consult a suitably qualified financial adviser.

ajbell_matt_brennan's picture
Written by:
Matt Brennan

Matt Brennan is Head of Passive Portfolios at AJ Bell and is responsible for the day-to-day running of the AJ Bell funds. He has over six years’ experience in financial services, having previously worked at Brown Shipley as a Senior Fund Manager and Head of Fixed Income Research, with specific responsibility for managing a discretionary fixed income fund. He also formed part of a four-person fund management team that ran the company’s multi-asset funds. Matt graduated from the University of York with a first class Masters degree in Mathematics, and is a CFA Charter holder.