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11 December 2007

Innovative investment fund from Strutt & Parker

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by Lin Freestone

Innovative investment fund from Strutt & Parker

A complex investment fund will be launched in mid-January 2008 in the UK, that will aim to benefit from falling house prices by using derivates. It is being set up by the financial arm of real estate agents Strutt & Parker.

Derivatives are basically a way of allowing traders to hedge their bets on the extent to which the property market will fall over various time periods.

The new fund, called the UK Residential Index fund, is the first of its kind in the UK. It will not actually invest directly in the bricks and mortar of residential properties but will take bets on how the widely-recognised Halifax House Price Index (HHPI) will swing in the future.

The Halifax Index showed that house prices in November fell by 1.1%, the largest decline since December 2006, and the first time the index has fallen in three consecutive months since 1995. This was seen to be one of the reasons why the Bank of England decided to cut interest rates from 5.75% to 5.5% last week.

Investors who are worried about house prices and want to hedge their bets will now be able to cut some of their losses by investing in the fund. People are worried about falling house prices and are not sure what to do about it.

Nick Harvey-Jones, from Strutt & Parker Real Estate Financial Service, reminds investors that it can take months to buy and sell a house. By using the fund, they can invest in the house price index and withdraw whenever they want to.

The firm believes that, although the growth in house prices will continue to slow over the foreseeable future, they will not fall outright next year, leading to its prediction that returns for the fund in 2008 will be in double-digits.

Strutt & Parker believes that long-term there will be a fall in growth, but not in prices. Over the coming year, prices will go back to the growth trend of 7% per annum, even though they have taken a big hit so far this year since August.

It is anticipated that the fund will be popular as it allows investors to move between its three different sub-funds, which each take different bets on whether prices will rise or fall.

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