The fund's manager since mid-1992 has been Vince O'Brien. "I was a qualified chartered surveyor and I joined Norwich Union in 1984 after two and a half years in private practice in London. I spent my first three years here working on the managed life fund and was responsible for the property element of our pooled pension fund."
He assumed overall responsibility for the pension fund in 1989 at the same time as plans for the Property Trust were coming to fruition. "The characteristics of property, equities or bonds are very similar and property investment covers the whole spectrum," he says. "It goes from being similar to investing in equities, when there is strong growth, to being like a gilt investment, when you are getting high income with very little growth."
One of the key aspects of the rules governing authorised property unit trusts is a limit to the amount directly invested in buildings. "Under the regulations, at least 20 per cent has to be invested in something other than bricks and mortar, and we choose to hold property shares, which account for around 30 per cent of the portfolio."
Mr O'Brien's philosophy of fund management would be equally applicable across other asset classes. He says: "You have to take every property on its own merits. For example, we would buy offices even if we wanted to be underweight in the office sector, if we saw an office property with potential we thought others had missed. We have to look at our top-down view compared with what actually comes across our desk that is available to buy. Most property is held by institutions which don't want to sell, so you have to deal with the 1 or 2 per cent that does come onto the market."
One potential drawback to investing in physical property is the relative lack of liquidity, but Mr O'Brien says the structure of his fund eliminates much of the difficulty. "Liquidity has not been much of a problem because We have a rigorous approach to cash flow, which means we can plan property sales where necessary and give investors their money back when they need it. Plus you have the regulations which mean you have to have at least 20 per cent in cash and shares, and that gives an extra element of liquidity. In 1995, we had pounds 15m of redemptions in a fund of only pounds 100m and everybody got their money in five days." He contrasts his unit trust with property life assurance bonds, which are purely invested in direct property.
He adds: "If an investor wants to invest in property he also wants to be able to get in and out. Fifteen years ago, the choice for most private investors was UK shares or UK shares. Now there are so many options and if people want to take money out of property and put it into, say, Japan, they don't want to have to wait three months to do it."
The profile of the portfolio has a relatively high share element. "The strategy for the past few months has been overweight in property shares. At the end of last year, the stock market was depressed and we thought property shares were oversold. We began buying heavily in the first quarter of this year and are still buying a few shares now. But the property sector has outperformed the FTSE 100 this year by a similar amount to that which it underperformed last year. We have 32 per cent in shares, compared to around 18 per cent 18 months ago, so new money coming into the fund will likely go into direct property because we will probably want to sell shares over the next 3 to 6 months."
The share portfolio is weighted towards larger companies, with major holdings including British Land (3.8 per cent of the portfolio), Land Securities (2.78), Pillar Property (2.6) and Chelsfield and MEPC (around 2.1 each). The largest individual direct property holding is an industrial development in Didcot (3.1 per cent), followed by office developments in the City of London (2.52) and Bristol (2.1) and a retail investment in Harrogate (2.16).
Mr O'Brien also suggests the profile of the direct portfolio is starting to change. "Direct property is becoming more diverse. Traditionally you were just looking at offices, retail and industrial, but other areas are opening.
"Last month we invested in our first hotel. A lot of hotel groups want to release capital and take 35-year leases with yields of around 8 to 9 per cent and increases linked to the RPI. If you assume inflation of around 2.5 per cent, then you are looking at total returns of 11 to 12 per cent, which are very acceptable indeed."
Fund Manager: Vince O'Brien
Fund : Norwich Property
Size of Fund: pounds 254.10m
Fund Launched: 1991
Manager of Fund: Since July 1992
Current Yield: 3.74%
Initial Charge: 5.00%
Annual Charge: 1.25%
Current Bid/Offer Spread: 5.00%
Minimum Investment: pounds 1,000 (then pounds 250)
Minimum Monthly Savings: pounds 50
Standard & Poors' Micropal Rating (maximum *****):
Fund performance (to 1 September 1999)
(offer-to-bid, with net income reinvested):
One Year 9.53%
Two Years 20.95%
Three Years 72.44%
Five Years 41.39%
Seven Years 99.04%
Since Launch 83.59%