A little reason can make you richer
Rob Page, Marketing Director, New Star Investment Funds tells MoneyWeek where he’d put his money now.
“All human actions have one or more of these seven causes: chance, nature, compulsion, habit, reason, passion and desire.” Aristotle wrote these words over 2,000 years ago, but they still have more than a passing relevance to today’s investor. Six of Aristotle’s “causes” are common drivers for most investors. Sadly, however, his fifth cause is sometimes in short supply.
If we were to employ a greater degree of reason before investing our hard-earned cash, we would be richer for it. Instead of investing at the top of the market, we would invest when the market was cheap. We would look to tomorrow rather than chase today’s ‘fad du jour’. And, of course, we would dictate that we should spread our investments rather than put all of our eggs in one basket. After all, volatile stockmarkets and an unstable geopolitical landscape have made the investment world an unpredictable place.
How high will interest rates rise? Will oil prices stabilise, or will the spectre of another 9/11-style terrorist attack become a reality, sending oil prices spiralling? Are UK house prices sustainable? Will we continue to enjoy positive economic growth? All these questions need to be considered before we invest. But unless you have a crystal ball, you can’t possibly answer such questions with any degree of certainty. In today’s unpredictable world, the rationale for spreading investment risk has never been clearer. Hence holding a variety of “non-correlated assets” (investments that move in different directions at different times) has become the order of the day - and for good reason.
Bereft of the ability to predict the future, my personal preference at the moment is to hold a balance of different investments. For me, this currently means commercial property - the hitherto unloved sibling of domestic property - bond funds with exposure to credit (rather than interest rate) risk, and several well-diversified equity funds.
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Commercial property is probably the most interesting of these. While the prices of our homes have raced ahead over the past few years, commercial property has produced more modest capital growth. Total returns in this area are delivered through a combination of a high and stable income stream and gentle capital growth. Rental income from commercial property is generally subject to long leases and is fixed for five years or more. It has the added advantage of frequently being subject to upward-only rent reviews.
The New Star Property Unit Trust, one of only three authorised funds investing in commercial property (the others are Norwich Property Trust and Aberdeen Property Share Fund), has delivered growth of 65.32% over the last five years, compared to a fall in the value of UK shares as a whole of 17.19%. This performance shows just what a good diversifier the sector can be. The fund also offers a current net yield of 4.2% and, diversification aside, I think the sector has a good chance of continuing to do well. Recently, there has been a considerable weight of money chasing limited levels of stock, resulting in improved total returns for investors. If we continue to enjoy improving economic growth, then the prospects for this sector - which is relatively undiscovered among retail investors - look especially good.
On a final note, all those years ago Aristotle also said: “Happiness depends upon ourselves”. As far as the investment world is concerned, this is certainly true. Invest with greater reason and follow some simple rules, and you, too, will become richer and hence - hopefully - happier.
