Commercial property investment is the key to a successful balanced distribution fund, according to Norwich Union.
NU's fund has switched a proportion of its investment in UK corporate bonds to increase its exposure to property. The idea behind the switch is to increase the income generated without increasing the risk.
The fund is now 40% invested in UK equity income, 32% (down from 40%) in UK corporate bonds and 28% in property (up from 20%).
"We believe the prospects for the sector remain bright," says Neil Davies, head of investment product development at Norwich Union, "Our view is a well-diversified distribution fund should currently have about a third of its assets in commercial property."
However, others would advise caution: "The question we need to ask is whether commercial property is a bubble sector and to what extent we will see performance going forward," said Ian Jeffries, head of investment marketing at Friends Provident.
"There have been exceptionally good returns from the commercial property sector over the last few years, but we can't say that will continue for ever and a day. This is something IFAs and clients need to be aware of."
Jeffries agrees however that commercial property is a good compliment within a distribution fund portfolio with a range of asset mixes. Total annualised returns from the property sector over the last one year are 11.2%, over three years 8.1% and over five years 8.4, Jeffries quotes.IFAonline
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